Nimble Wal-Mart?

Who's afraid of the British invasion represented by retail giant Tesco? Maybe Wal-Mart (NYSE: WMT) is, judging by its plan to test out some smaller-format stores in Arizona.

Wal-Mart plans to open up four stores dubbed "Marketside," which will be about 20,000 square feet - about half the size of the regular Wal-Mart "Neighborhood Market" model. This is reportedly a response to Tesco's opening of small stores called "Fresh & Easy" here in the States. The Fresh & Easy stores will focus on small numbers of items in a format geared toward fresh foods and convenience.

Wal-Mart's not the only grocery retailer exploring smaller formats, either. Last August, Whole Foods Market (Nasdaq: WFMI) said it was testing a concept called Whole Foods Market Express, which will offer value-priced, on-the-go foods.

It should be interesting to see how big a deal Tesco's small-format entry will be. Will it hurt other big grocers, such as Safeway and Kroger, or hurt quick-stop standbys such as 7-Eleven? What about McDonald's quick dollar deals, or other fast food retailers with organic or ethnic emphases?

Most interesting of all, perhaps, we'll see whether Wal-Mart's Marketside experiment will end up a keeper for the retail behemoth. If so, a retailer with a giant-sized reputation may become a more nimble competitor - a trend its shareholders will definitely want to track.