Inside This Issue - News
Walmart sets course
October 21st, 2013
BENTONVILLE, Ark. – In the face of a challenging global economic environment, Walmart is focused on initiatives to improve domestic sales and international returns in the near term, executives said during the company’s annual analyst conference here.
"We are in a tough and unpredictable global economy," said president and chief executive officer Mike Duke. "So there are near-term areas that we are focused on: growing U.S. comp sales, improving returns in international, and leveraging expenses as a company for the fiscal year."
Duke added that the federal government shutdown is on the minds of Walmart’s U.S. customers and that the retailer is "following the situation very closely." In his remarks, Walmart U.S. president and CEO Bill Simon bluntly noted that when people are not getting paid they do not shop as much.
During his presentation, Simon also revealed a notable upcoming milestone for the Walmart U.S. division. For the first time, the division plans to open more smaller-format stores than Supercenters.
For fiscal 2015 (which begins in February 2014) through fiscal 2017, the division now plans to open 300-plus Supercenters, while more than 400 Neighborhood Markets are slated to open in the same span. At present Walmart fields 3,228 U.S. Supercenters and 306 Neighborhood Markets.
Simon also said that beginning in March Walmart will test using some of its Supercenters as distribution centers for nearby smaller stores, with the goal of cutting costs and improving in-stocks. He noted that the division’s profitability is satisfactory, but not its sales.
In fact, during the second quarter the bottom 10% of domestic Supercenters turned in a 7.5% decline in comparable-store sales, while the 530 remaining discount stores registered a 0.8% decrease. By contrast, Neighborhood Markets posted a 3% increase in comp-store sales while the smaller Walmart Express stores experienced a 14.5% jump in comp sales.
Walmart accelerated its Neighborhood Market expansion during the past year, and that has helped fuel a 30% year-over-year rise in total sales for the format. With development plans being ratcheted up further, management now projects that the Neighborhood Markets will generate total annual sales of about $12 billion by fiscal 2017.
The Supercenter format, which remains the core of Walmart’s U.S. business, is going to be tweaked further as well. Although the average size of a domestic Supercenter is around 180,000 square feet, the company has a prototype measuring only 99,000 square feet that has gotten strong reviews from executives in years past. Now the company is contemplating reducing the footprint even further, to approximately 70,000 square feet, a move that would reduce building and operating costs while opening up more possible locations.
In addition, Simon acknowledged that the company has developed store-specific plans to improve the performance of the bottom 10% of Supercenters, with operational reviews to be conducted every 30, 60 and 90 days. Increased visits by senior management are part of the program.
The company’s original discount store format will continue to play a dwindling role. About 30% of them have been approved for conversion to Supercenters, while another 30% are being evaluated. For the rest, management is developing strategies to compete effectively on assortment and price.
Walmart International, which has been the company’s main growth driver in recent years, also faces a sobering near term. Poorly performing stores in Brazil and China, both major markets, will be closed and development plans have been reduced to just 14 million square feet this year, down from a prior forecast of 20 million to 22 million square feet.