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The Format Follies

Wal-Mart downplays speculation on acquisitions

BENTONVILLE, Ark. -- Wal-Mart Stores Inc. said yesterday that it was considering new store sizes and types in the United States, but played down the possibility of acquisitions as it faces slowing sales growth at its older stores and new U.S. competition from British rival Tesco.

The world's largest retailer said it was hiring managers for a team to consider new formats beyond the four established U.S. types: Wal-Mart discount stores, supercenters that combine groceries and general merchandise, Sam's Club membership stores and Neighborhood Market grocery [image-nocss] stores.

According to the Associated Press, the prospect of acquisitions was raised by an ad on Wal-Mart's website for a senior director of "multi-format strategies" whose responsibilities would include to "assess the strategic implications of any possible M&A [mergers and acquisitions] on our overall portfolios."

Wal-Mart spokesperson John Simley noted that the reference to possible acquisitions came after a long list of other responsibilities for the job, most of which involve evaluating the market and finding opportunities for growth from new store types. "The fact is, two months ago we posted a number of middle-management-level positions to evaluate our existing formats with the aim of achieving better customer relevance," he said.

Analysts said it made sense for Wal-Mart to look at new formats, such as smaller stores, but that it was not likely to go on an acquisition spree. "Wal-Mart has been building things from the ground up for a long time," Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich, Seattle, told AP.

Sam's Club has bought some rival stores to complement its growth, but the bulk of Wal-Mart's U.S. growth has been through building new stores, she said.

Robert Buchanan, retail analyst at A.G. Edward & Sons, a St. Louis brokerage and consulting firm, told AP that the head of Wal-Mart's U.S. stores, Eduardo Castro-Wright, came from Wal-Mart in Mexico, where the retailer has six or seven formats and, therefore, is experienced with running various types of stores.

Buchanan said the timing was right for looking at new formats because of the imminent opening of Tesco's first U.S. stores in Southern California, Arizona and Nevada. The British grocery giant plans to open 30 Fresh & Easy Neighborhood Markets, which will be smaller than typical supermarkets but bigger than typical convenience stores. "Wal-Mart is always trying new things," Buchanan said.

Wal-Mart, based in Bentonville, Ark., might make a smaller acquisition in the next two or three years, Buchanan said, but added, "I don't see them going on a buying spree."

Wal-Mart's sales at stores open at least a year, a key measure among retailers, have been slowing, and in the latest quarter rose a only 1.9%, AP said.

Edwards said retailers as an industry are looking at smaller, more niche-oriented stores as shoppers apparently tire of big boxes. Wal-Mart could be expected to look at smaller options, too, she said. "In retail, you always have to do something new and different to keep the attention of the consumer," Edwards said.

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