NEW YORK — Wal-Mart may not have designs on world domination, but it is pressing the accelerator for global growth and experimentation this year.
It’s happening even after a challenging 2003 marked by slowing comp-store gains, lawsuits on gender discrimination, a highly publicized raid of undocumented workers and subsequent government probe, disappointing results in Germany, image problems, and some resistance by certain cities to supercenters.
“Our intention is to continue to grow in the U.S. and around the world. We think the environment is right for growth,” stated H. Lee Scott, president and chief executive officer of Wal-Mart, during a speech Sunday, the opening day of the National Retail Federation’s annual convention here at the Jacob K. Javits Convention Center.
Additionally, the company has a willingness to experiment with smaller formats and learn from other retailers around the world, said Scott, a 24-year veteran of the chain. The next overseas markets could very well be India and Russia, judging from his comments. “We do believe the issues of Russia are over,” Scott said. “Retailers of a global scale are exploring Moscow and St. Petersburg.”
Hinting at India for upcoming expansion, he cited the country’s strong middle class with a population of 50 million to 60 million. “You will see global retailers moving to India over the next few years,” Scott projected, though he didn’t specify any plans for his company.
China remains Wal-Mart’s biggest growth opportunity. “China is very exciting,” Scott said. The company only operates 34 stores there and like other retailers entering the country, has run into red tape in its expansion efforts, he related, though the government of China is becoming more cooperative and “modern retailing” there is running at 50 percent increases. Quoting his predecessor David Glass, Scott said, “China is the only place where we can replicate what we did in the United States.”
On the experimental front, a 99,000-square-foot version of Wal-Mart’s supercenter, which is typically around 200,000 square feet, is being developed in Florida, with a “metro market assortment and adjacencies that look different,” Scott disclosed. “Because of the zoning, we had to rationalize the assortment, but we are excited about it.” The store could open early this year.
The new format appears to be a response to mounting opposition in certain communities to Wal-Mart’s dominant supercenter format. The company suffered a blow last month when the Los Angeles City Council’s Housing, Community & Economic Development Committee voted in favor of an ordinance that would effectively keep any supercenter from opening in the city, by prohibiting stores occupying more than 100,000 square feet of space with more than 10 percent devoted to nontaxable grocery sales from all city, state and federal economic assistance zones, or roughly 40 percent of land in the city. Earlier last year, the city of Dallas nixed a plan by Wal-Mart to open an unusual multilevel supercenter.
Wal-Mart is also experimenting with two fashion-only George stores in England. George is the apparel brand Wal-Mart acquired through its Asda acquisition a few years ago. Scott seemed lukewarm on that experiment. “I haven’t seen anything that would show an aggressive rollout,” he said.
Though greeted by about 2,000 retailers, suppliers, consultants and analysts at the convention hall, and photographers who relentlessly clicked away from the foot of the stage, Scott appeared relaxed throughout his hour-long address, touching on a wide range of subjects without going greatly in depth on any, displaying a lot of dry wit and occasionally sounding defensive. Some of the subjects were controversial, such as Wal-Mart’s reputation for beating up on suppliers, driving smaller retailers out of business, not selling certain rap music with antipolice themes or movies with sexual content deemed distasteful by Wal-Mart and some consumer groups, and supporting “dumping” of cheap imports into the U.S. and, in turn, hurting domestic suppliers. “We at Wal-Mart cannot determine who is dumping,” Scott contended. “We see that as a government responsibility. We think we do have a responsibility to work with American suppliers, but the truth is that the world is changing.”
On restricting the sale of products, the Wal-Mart ceo said, “I don’t think of it as censorship, as long as you can buy it somewhere else. Our shareholders own the store. They are not public stores. We believe there are certain things we don’t want to sell.”
“The issue of power and buying is interesting,” Scott said, though he suggested examining the annual reports of such suppliers as Procter & Gamble, a close vendor partner of Wal-Mart. “You don’t have to feel sorry about P&G. They’re netting about 10 cents on the dollar. We are netting three.”
Regarding importing, health care, environmental and other issues, the Wal-Mart chief executive said, “It’s time the retail industry came together. We have a lot to be proud of. We provide great jobs. We serve customers well. This is a great industry. But we don’t come together with a common voice on issues that confront us.”
Wal-Mart is pressuring about 100 major vendors to initiate RFID technology at the warehouse level in a year. “Many of our suppliers are right in the midst of it. It’s not like we are going to quit doing business with them if they just can’t do it. We are not trying to hurt them. It’s something like tough love.” RFID will help Wal-Mart track merchandise better, drive down excess inventory, reduce costs and markdowns, Scott said, noting, “We have billions of dollars of inventory more than we need.”
As far as small stores, he said he’s noticed a lot of small retailers and strip centers surfacing, and at his most humorous moment, he cleared up the scariest speculation about Wal-Mart, the world’s largest company, approaching $250 billion in sales. “There isn’t a grand plan to take over the world. If there ever is one, I hope it’s after I retire,” he said.
“We just keep growing. We don’t think we are going to own the world,” Scott added, citing such companies as Nordstrom, Dollar General and Carrefour as serving the needs of consumers in ways that Wal-Mart doesn’t and told the crowd that Wal-Mart is probably not going to take away much of Nordstrom’s shoe business.
In Japan, Wal-Mart owns over 35 percent of Seiyu. “We don’t control Seiyu in any way. We work with Seiyu as a consultant and we are making good progress and are very happy about that.” Wal-Mart does have the option to purchase a majority stake in the future.
In Brazil and Argentina, Scott said, the company has been “successful,” with the economies of those countries seeing more stability.
Canada has been Wal-Mart’s most productive international market. Woolco was cited as the best acquisition to date.
In contrast, Wal-Mart’s effort in Germany has been its worst overseas venture. Scott acknowledged it was one country where Wal-Mart made a lot of bad decisions and dug a very deep hole for itself, by misreading the competition and the culture, though improvements have been made.
Overseas expansion is not just a top-line sales opportunity, Scott stressed. “Around the world there are great retailers serving customers in a way that we can learn from.” In France and South America, for example, Carrefour sets a standard for selling fish, according to Scott.
“We are very excited about being involved in global retailing,” Scott enthused. “With trade barriers falling in Europe, there are great opportunities to combine efficiencies. What a great market for many of us to think about.”
In his commentary on growth, Scott stated that while Wal-Mart does have an opportunity to expand via smaller formats, its large stores are continuing to do extraordinarily well. “The 200,000-square-foot supercenter is the most productive,” he pointed out.
Scott sees Wal-Mart adding: 50 million square feet of retail space this year, bringing it to 650 million square feet; 220 to 230 supercenters, including 100 relocations; more than 50 discount stores, 25 to 30 neighborhood stores selling food, pharmaceuticals, hard goods, and 35 to 40 Sam’s Clubs. There will be between 130 and 140 new stores opened outside the U.S., including 30 relocations.
This year may not be Wal-Mart’s most productive, Scott acknowledged, anticipating comp-store sales “modestly” above those of 2003, or about on par with last year’s gain. He said due to the tax stimulus package, the first half of the year should be positive for retailers in general. Job growth is also important from the standpoint of consumer psychology, he said, adding, “People are responding to product innovations, like mp3 players.” They may be short on cash and deep in debt, “but they find the money to buy it,” Scott noted.
“I’m surprised at the slow growth of the [Wal-Mart] neighborhood stores,” said retail analyst Walter Loeb, who was instrumental in getting Scott to speak at the NRF. He said it was the type of concept Wal-Mart could “explode” partly because of its smaller, 40,000-square-foot format.
Loeb also speculated it could be as long as five years before Wal-Mart starts doing apparel only stores in the U.S. “They’re not ready,” he maintained. “It will take them that long to develop a strong fashion apparel story.”