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Wal-Mart Plots New Approach to SuperCenters

The retail giant's mantra has long been “bigger is better,” but it seems now the Bentonville, Ark.-based company is thinking small.

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Wal-Mart’s mantra has long been “bigger is better.” It seems now though, the Bentonville, Ark.-based giant is thinking small.

This was among the plans revealed on Tuesday during Wal-Mart Stores Inc.’s 19th Annual Meeting for the Investment Community.

Currently, Wal-Mart operates only 16 small-format stores, but that will quickly change. “At our peak we were at 300 Supercenters and small stores could exceed that,” said Bill Simon, president and chief executive officer of Wal-Mart U.S. “There could easily be 500 Neighborhood Markets [usually under 50,000 square feet of selling space] by 2016 generating more than $10 billion in sales.” Simon said 12 Wal-Mart Express stores — with 10,000 to 12,000 square feet of space — will open by the end of 2013. “Over the next two years, we will add 7 million square feet just in the small-format stores,” he said.

Express units can fit into dense markets. “It has a huge price advantage and we’re adding gas to these. The small formats have evolved into a hybrid. They compete against a broad breadth of competition in different channels,” he said.

The world’s largest retailer is not ignoring how it came to earn that moniker. Supercenters, with an average size of 197,000 square feet and historically one of the most profitable retail formats, are still considered a vehicle for growth. “We’re going to keep the Supercenter store count where it’s been,” said Simon. “We want to build market share in our core markets. The customer reception is already in place. We believe there’s a substantial runway for Supercenters in key markets with above-average profit and market share.”

The theme of the day-long meeting was to reassure Wall Street retail analysts that Wal-Mart is financially strong and able to maintain its impressive cash flow by accelerating its productivity loop and driving down selling, general and administrative expenses.

Charles Holley, chief financial officer, said Wal-Mart U.S. is expecting sales growth of 5 to 7 percent in fiscal 2014. Capital expenditure for 2014 is budgeted at $12 billion to $13 billion, excluding acquisitions. “Our first priority is to grow the business,” he said. “We’ve increased our dividend by 18 percent in last 10 years and returned $71 billion back to shareholders.”

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The firm said that over the last two years it reduced SG&A as a percentage of sales by 50 basis points and its stock price has reached several all-time highs this year. Shares of Wal-Mart, in fact, hit a fresh new high of $76.81 Wednesday and closed up 1.7 percent at $75.42.

The international business had a 15 percent increase in top-line sales and 17 percent increase in operating profits. Last year, sales totaled $125 billion for the business.

Wal-Mart is also making a major push in e-commerce, both Stateside and abroad. In August, the firm received conditional approval from Chinese regulators to acquire a majority stake in online retailer Yihaodian. Doug McMillon, president and ceo of Wal-Mart International, said Yihaodian will be used to expand e-commerce in China, then those learnings will be taken to other emerging markets. “Yihaodian has 24 million registered users and was cited as one of the fastest-growing e-commerce businesses in China,” he said.

Wal-Mart’s e-commerce ventures in 10 markets worldwide (including the U.S.), will bring $9 billion in revenue next year, McMillon said.

Neil Ashe, president and chief executive officer of Global Ecommerce, said Wal-Mart offers 15 times more products online than in its stores. The number of products will continue to grow exponentially. “We invite third-party participants now and we expect to continue that program in the future.”

In addition to its Site-to-Store, Pick Up Today online shipping options, Wal-Mart launched Pay With Cash, so shoppers who don’t have a credit card can order online and pay at a store. “Cart sizes are 50 percent greater than average walmart.com baskets,” Ashe said. Wal-Mart is also testing same-day delivery in select markets for holiday. With 4,000 points of distribution — Wal-Mart stores — around the country, the cost of same-day delivery isn’t prohibitive. “It takes advantage of existing systems in the stores and doesn’t tax systems in any way.”

Wal-Mart ceo Mike Duke alluded to the bribery scandal that plagued Wal-Mart last spring. The retailer, which allegedly violated the Foreign Corrupt Practices Act, said it was cooperating with the Department of Justice and the Securities and Exchange Commission. On Wednesday, Duke said, “We have the highest expectations in the area of compliance.” He added the retailer has to make sure it’s “doing the right thing everyday in every market we operate in.”

As for its other branches, Sam’s Club, ceo Rosalind Brewer said the retailer will begin selling The Children’s Place brand for the holiday season. Nautica is available at Sam’s and Eddie Bauer is being sold in apparel and home departments. “These are the kinds of relationships you’ll see us building in the coming years,” she said.

Sam’s will open the largest number of clubs since 2009 this year, and a record number in 2013. Apparel sales are up by double digits and baby care is ahead 12 percent, while Sam’s traffic rose 22.5 percent and orders advanced 19 percent.

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