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WalMart Cuts Underperforming Overseas Stores
WalMart is taking a number of steps, from closing poorly performing stores in Brazil and China to opening more smaller U.S. stores than larger ones, as it moves to improve results in the face of difficult conditions worldwide.
The world’s largest retailer sees a “tough” and “unpredictable” economy around the world, Chief Executive Officer Mike Duke said, a week after the International Monetary Fund trimmed its outlook for global growth.
In the United States, by far Wal-Mart’s largest market, customers are trying to stick to budgets. More than 1 million people have already signed up for holiday layaway, which allows shoppers to put items on hold and pay for them over time. Four of the top five items on layaway are electronic tablets, Walmart U.S. said.
The government shutdown is also weighing on customers’ minds, Duke said at the company’s meeting with investors and analysts in Arkansas on Tuesday. The meeting was also webcast.
Thousands of federal workers have been furloughed in the impasse over the U.S. budget and Walmart U.S. Chief Executive Bill Simon said if people were not getting paid, they were not shopping as much.
Sam’s Club CEO Rosalind Brewer said that just over 40,000 people came to shop at its warehouse clubs after the chain waived its usual fee for those who could not access military commissaries closed in the shutdown.
But Duke added: “No matter what environment we are in, Wal-Mart will win.”
Wal-Mart shares were down 2 cents, or 0.03 percent, at $74.66 in afternoon trading on Tuesday. Through Monday, the shares were up 10 percent this year, underperforming the 19.7 percent gain in the S&P 500 .SPX.
SLOWING INTERNATIONAL GROWTH
Wal-Mart now plans to open just 14 million square feet of new store space in international markets this year, down from its prior forecast of 20 million to 22 million square feet, said Walmart International Chief Executive Doug McMillon.
The company is closing about 50 under-performing stores out of hundreds it has in the major emerging markets of Brazil and China, McMillon said. The company said the stores set to close represent about 2 percent to 3 percent of its sales in each of those markets, although it is still opening new stores as well.
Walmart International’s slower growth continues a trend that coincides with its practices coming under scrutiny. In April 2012, the New York Times reported allegations the company had bribed Mexican government officials to speed up store approvals.
Walmart International added 19 million square feet of store space in fiscal 2013, after first targeting growth of 30 million to 33 million square feet, then lowering that target to 21 million to 23 million square feet.
The Bentonville, Arkansas-based company said it still wants to invest in India. Last week, Wal-Mart and Bharti Enterprises broke off their joint venture there, leaving Wal-Mart with just the 20 Best Price Modern Wholesale cash-and-carry stores.
SUPERCENTERS AS DISTRIBUTION HUBS
Wal-Mart has already felt pressure from the economy. Same-store sales at Walmart U.S. unexpectedly fell 0.3 percent in the 13-week period that ended in late July.
Walmart U.S. feels pretty good about its profit, but is not satisfied with its sales, Simon said. Same-store sales at the bottom 10 percent of its large U.S. supercenters were down 7.5 percent over the same period, he added.
For the first time, Walmart U.S. plans to open more smaller-format stores than supercenters, he added. Walmart U.S. plans to open 235 to 265 stores in fiscal year 2015, about 120 to 150 of them small stores. It is planning for about 245 openings this year, slightly above an earlier forecast.
Walmart U.S. said it is testing using its supercenter stores as “cross docks” to supply nearby smaller stores, a move that could help it keep goods in stock and cut costs, Simon said. The plan is being tested and will roll out in the first of three unnamed markets in March, he said.
Using the back room of a supercenter as a holding area for goods to be sold there and as a “little mini warehouse” to prepare for daily deliveries to smaller stores would eliminate the need to send 53-foot trucks from distribution centers to the smaller stores, cutting transportation costs, Simon said.
The company’s supercenters are the backbone of its business, selling a mix of groceries and general merchandise in stores that are each roughly 182,000 square feet. Walmart U.S. is building more of its smaller Neighborhood Market stores, which are about 38,000 square feet each and operate more like traditional grocery stores. It also has about 20 Walmart Express stores, which are roughly 15,000 square feet.
Walmart U.S. also talked about opening 70,000-square-foot supercenters, which would cost less to build and operate.
Walmart U.S. raised its capital spending forecast for fiscal 2014, which began in February, by $500 million, to a range of $6 billion to $6.5 billion, and projected spending $5.8 billion to $6.3 billion in fiscal 2015.
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