Wal-Mart Offers 'Small' Details

Focusing growth on three formats; increasing capital efficiency of remodeled, new stores

BENTONVILLE, Ark.-- Earlier this week, Wal-Mart Stores Inc. presented its global plans for growth of its operating segments for the current and next fiscal year at its annual conference for the investment community. Executives also provided more details about the company's plans for smaller-format stores.

"Over the next few years, we will introduce new formats to help us enter new markets," said Bill Simon, Walmart U.S. president and CEO. "Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill [image-nocss] in gaps in existing markets."

He said, "The large format is our supercenter, which sells a broad assortment of groceries and general merchandise. We have integrated efficiencies into our supercenter design that have allowed us to decrease the average square footage for our supercenter format. The medium format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market. The small format, which is less than 30,000 square feet, will be targeted to urban markets and small towns."

Simon added, "We also are allocating capital to continue converting discount stores to supercenters, which add no square footage, but are expected to increase sales," Simon said. "Of the 155 to 165 supercenters we will add next year, 45 to 50 will be new units, with the remainder conversions. Neighborhood Markets will make up the bulk of the medium format stores, and there will be some pilots of the small-store format included in next year's plan."

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By the end of the current fiscal year, more than 550 U.S. stores will have been remodeled. Walmart U.S. plans to remodel more than 500 stores next fiscal year.

"Remodeling costs will be lower next year, due to changes in design and schedules. The time to remodel a store will decrease by 40%, and with fewer disruptions, traffic and sales will improve sooner," said Simon.

He concluded, "We are very excited about the additional growth opportunities that we have in the United States. We will have growth in geography, growth in formats and growth in multi-channels."

Charles Holley, executive vice president, finance and treasurer, added, "We expect to grow total company square footage between 3% and 4% next fiscal year, which means that square footage and capital spending will grow at approximately the same rate. Overall sales growth is forecasted between 4% and 6%," Holley said. "In the United States, we will shift more capital toward new stores, including supercenters and smaller formats."

Bentonville, Ark.-based Wal-Mart is planning to open dozens of small stores in the nation's cities, in an effort to push back against the dollar chains, convenience stores and other competitors, added a report by The Wall Street Journal. The prospect of Walmart stores dotting America's biggest cities would change the urban landscape and the profile of the world's largest retailer, known for its blocky suburban edifices stocked with low-cost goods. The new stores, roughly a quarter to a third the size of a supercenter, largely will sell groceries.

Simon said he believes there is room for "hundreds" of small Walmart stores in the United States offering food and consumer staples. The retailer first will test their urban appeal with 30 to 40 stores over the next few years before a full-scale launch, said the report.

Wal-Mart's move to go small is about more than trying to sidestep longstanding urban foes with stores that require fewer zoning approvals, the Journal added. Wal-Mart faces new challenges from bare-bones outlets including Germany's Aldi and chains such as Dollar General Corp.

"I am not focused on any one competitor," Simon said when questioned by analysts about whether the small-store shift was spurred by dollar stores, but he added: "Do they have a head start? Yeah, they do, they have 20,000 [stores]."

Simon would not specify which cities Wal-Mart wants to enter, but acknowledged that coastal cities such as California's were a possibility. But he joked that he had liked the musical selections during a dinner the prior evening, which included "New York, New York" being sung by a choir of Wal-Mart workers. Wal-Mart currently has no stores in the Big Apple.

Wal-Mart did not detail how many workers the new, smaller stores would employ, but its Neighborhood Market groceries average about 95 workers each at more than 180 stores, mainly in the south, the report said.