updated 10/21/2007 2:41:13 PM ET 2007-10-21T18:41:13

Wal-Mart Stores Inc. may talk about ideas for new, smaller stores as a way to bolster its flagging U.S. growth when it holds an annual two-day conference for investors and financial analysts starting Tuesday.

Analysts said the issue may come up after the world’s largest retailer, which in June announced plans to open fewer big new stores each year, said this summer it is considering new store sizes and types in the U.S.

Until now, Wal-Mart has mainly run large discount stores and Sam’s Club membership warehouses in the United States. But sales growth at Wal-Mart stores opened at least a year, a key retail measure, slowed to 0.8 percent through September this year, from 1.9 percent for the last full fiscal year and 3 percent in 2005.

Analysts say smaller stores could help by being easier to place in the urban markets where Wal-Mart is trying to expand from its rural base. They could also draw more consumers by being easier to navigate than giant Supercenters, which combine groceries and general merchandise in stores as large as 200,000 square feet.

New store types, or formats, may also be necessary to adapt to competitive pressure from large rivals such as Tesco of Britain, which is entering the U.S. this year with much smaller, convenience-oriented grocery stores of about 10,000 square feet in Southern California, Arizona and Nevada.

“The new trend in retail that I keep hearing about everywhere is specialization and smaller stores,” said Patricia Edwards, managing director and retail analyst at Wentworth, Hauser and Violich in Seattle, which manages about $12 billion in assets and holds about 35,700 Wal-Mart shares.

Wal-Mart did launch a full-size grocery store called Neighborhood Market in 1998. But that chain has remained fairly small, accounting for 125 of Wal-Mart’s more than 4,100 U.S. stores as of September.

Edwards said Wal-Mart may need to go smaller or more specialized with new stores. She said Wal-Mart could look to the model of its Mexico subsidiary, which has Suburbia clothing stores and smaller Bodega shops as well as Supercenters and Sam’s Clubs.

Retail analyst Charlie Georgas at Jackson Securities said Wal-Mart has been right to focus on its traditional strength of low prices after a brief foray last year into more fashion.

“In a slowing economy, all income groups have a tendency to step down in terms of their purchases and that can drive traffic to some of the discount retailers,” Georgas said.

Wal-Mart’s announcement this week that it is cutting prices on 15,000 holiday items, after similar announcement on toys and back-to-school supplies, helps bring more shoppers into its stores, Georgas said.

Georgas also said its important to remember that Wal-Mart has a growing international operation, with stores in 13 countries including Central and South America and China and a joint venture in India. That provides a connection to rising income levels in developing nations.

“There’s definitely still growth opportunities for them,” Georgas said.

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