“It’s our job to be the emissary of our customer,” H. Lee Scott, president and chief executive officer, said Monday at the 15th annual analyst and investor meeting of Wal-Mart Stores Inc., in Bentonville, Ark. “This is Wal-Mart’s time. This is the kind of environment that Sam Walton built this company for.”
Executives described a highly disciplined company with a conservative balance sheet, greater financial stability and strong inventory management, well-positioned to weather the economic storm and succeed once there is a return to fiscal health.
Although Scott said he didn’t want to gloat, as the retail industry is being battered because of the financial crisis. “[This is] one of the few times you’ve come to see us when we might actually feel better than you do,” he said. “Pardon me for standing a little bit taller today, but I will not strut because I know how quickly this world is turning today.”
While 20 percent of Wal-Mart’s customer base doesn’t have bank accounts, Scott said they will spend on gifts for Christmas. “Christmas will come on Dec. 25 of this year and Wal-Mart around the world will have the merchandise and the best prices in the marketplace. It not usual for people to go out of their way and treat their families well,” he said.
Scott referenced billionaire investor Warren Buffett’s moat theory, in which the companies with competitive advantages are like castles with moats. “We see this as our opportunity to widen our mote,” he said.
Eduardo Castro-Wright, president and chief executive officer of Wal-Mart’s U.S. division, said the company will double its investment in store remodels to $1.7 billion, even as it’s reducing the number of new stores projected for fiscal 2009 and fiscal 2010. Wal-Mart, which opened 218 new stores last year, will open 191 this year and 142 to 157 next year. Capital expenditures will fall from $9.1 billion last year to between $5.8 billion and $6.4 billion this year and potentially rise to $6.3 billion to $6.8 billion the following year.
Any new stores to be built will be smaller than Wal-Mart units in the past, ranging in size from 140,000 square feet to 170,000 square feet. Castro-Wright said the company has found the smaller units to be more productive in terms of sales per square foot.
With fewer new units planned, Wal-Mart is reinvesting in existing stores. Castro-Wright said the improved performance of home and apparel also played into the decision. Wal-Mart slowed down on remodeling the home and apparel departments several years ago “because we didn’t think we had a story to tell,” Castro-Wright said. “Now we do. We’ve been testing new components and feel very confident that it’s the right thing to do. This is the time we can take advantage of our market strength.”
Dottie Mattison, senior vice president and general merchandise manager of apparel, said the company is taking a “win, place, show” approach to managing its portfolios. “Apparel is a very important part of our portfolio,” she said. Wal-Mart wants to “win” in the areas of price leadership, clarity of offering and skew reduction. The company has significantly increased its private-label offerings to achieve price leadership, she said. “We have changed and are enhancing our brand portfolio. You’ll continue to see great brands come to market.”
In January, Wal-Mart took one-tenth of the real estate in the women’s area and christened it The Hot Spot. “The Hot Spot could mean we celebrate an event like Halloween or celebrate a new brand like L.E.I.,” Mattison said. “We turn it super fast. In December, you’ll see a great juniors gifts-to-go section.”
The company has also focused on stockkeeping unit reduction and rationalization. “We have significantly fewer skus in apparel today than a year ago,” Mattison said. “It’s easier to focus and achieve a clear messages. We’re also committed to investing in growth categories. Denim for the family [is important]. We’ve changed our denim brand portfolio and it’s enhanced the performance of private label.”
The rough economy is bringing new, upscale customers to Wal-Mart stores. Castro-Wright said same-store sales traffic at stores serving households with incomes of over $65,000 is up by about 2 percent and down for units serving households earning less.
“We are seeing a lot of customers that did not consider Wal-Mart before,” he said. “We are not only taking more share from the market, our share performance is actually accelerating as time goes by, reflecting the strength of our position. The consumer trusts Wal-Mart, they trust the Wal-Mart brand.”
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