Despite flat same-store sales and lackluster earnings, Wal-Mart aims to “win” the upcoming holiday season.
That bravado came on Wednesday from Greg Foran, the new president and chief executive officer of the U.S. business at the mass behemoth’s 21st Annual Meeting for the Investment Community.
The meeting was to reassure Wall Street in the face of the volatile stock market and signs that shoppers may rein in spending. It also was a rallying of the troops — Foran dubbed it “a call to arms” — to help pacify employees who have become increasingly vocal and organized, protesting their wages, work schedules and benefits. The meeting was the first time the hand of Doug McMillon, chief executive of Wal-Mart Stores Inc., could be felt in the program, which was carefully choreographed to include lots of videos of advertising and marketing campaigns.
Along with McMillon, Foran represents a generational shift at the retailer as it rushes to adapt and become less insular. He is Australian and doesn’t speak with the Arkansas twang of founder Sam Walton and the mostly male executives the company has groomed. Nor does he use the same words. “I put a high value on candor and the unvarnished,” said Foran, who was Wal-Mart’s top Far East executive before his appointment in July.
In a tough day on Wall Street on Wednesday, Wal-Mart stock closed down 3.6 percent, or $2.78, at $75.20, on the New York Stock Exchange.
Wal-Mart is mature in the U.S., at least in brick-and-mortar terms, even as investors continue to demand growth. That was clear at the meeting, where analysts were eager to know what the retailer expects to spend in the next two years.
The retailer plans to spend big, although it slightly modified its original forecast of capital expenditure for fiscal 2015 to $13 billion from the forecast of $12.4 billion to $13.4 billion provided in February.
The focus in fiscal 2016 will be on e-commerce as Wal-Mart rushes to try to close the gap, even slightly, with Amazon. Asked by an analyst whether Wal-Mart is considering delivery options such as the Amazon Prime model, which charges a membership fee and which Google is adopting, executives said they were not.
The retailer plans to spend $1.2 billion to $1.5 billion on e-commerce that year, up from $1 billion this year. Overall capital investments in fiscal 2016 will range from $11.6 billion to $12.9 billion.
Given the company’s scale, any numbers at Wal-Mart tend to be massive. It will add between 26 million and 30 million square feet of retail space worldwide next year, although that’s a decrease from this year’s 32 million to 34 million square feet.
While Wal-Mart steps up its investment in technology, making 145 acquisitions in the past two years and developing apps such as Savings Catcher, Foran remains committed to the retailer’s cash-cow format of Supercenters, even though those stores have consistently seen declines in comparable-store sales.
“My primary focus is on improving the store business,” he said. “The Supercenters should be delivering positive comps.”
Meanwhile, the company is hedging its bets, with plans for next year to open about 200 Neighborhood Markets, which are far smaller than the massive Supercenters. “You’re going to see continuing improvement occur in that format,” Foran said. “There’s an opportunity to change up the Neighborhood Markets a little bit in terms of in-store experience. So, as we ramp up and build [more stores], they have to incorporate our best thinking. We have a tremendous opportunity in that format.”
McMillon referred to Wal-Mart’s disappointing same-store sales and said, “In retail, you get what you deserve, and we’re kind of getting what we deserve right now. We need to set up our associates so that they have what they need to win.”
Issues he deemed “urgent agenda items” included tightening procedures around markdowns and inventory damages, growing inventory at twice the rate of sales and getting good retail processes and procedures for returns. He also is scrutinizing in-stocks, which have been criticized. “We can’t let the competition beat us on price,” he noted.
Duncan MacNaughton, chief merchandising officer, said the entertainment department has been completely reimagined, with stations for trying products such as Beats. He also said Wal-Mart is entering new categories, such as wearable tech, although he didn’t provide details.
Neil Ashe, president and ceo of global e-commerce, said Wal-Mart has been working on its Web site and will roll out a redesign, “but we don’t have a date yet. We started to design the new site from the tablet,” as consumers increasingly shop from a tablet. New options include a pharmacy feature, which makes refilling prescriptions easier, and a personalization engine, which helps customers find items geared to their exact interests.
Wal-Mart, which touts its brand names, is giving private brands a closer look. McMillon said company-owned brands would give Wal-Mart better margins, which, in turn, would allow it to deliver lower prices. “If done properly, the percentage of space we give to private brands can improve. It can help to build loyalty. Having a few items that are truly special will mean something. That doesn’t mean that we don’t want to drive sales with brands,” he said.
David Cheesewright, president and ceo of Wal-Mart International, was asked whether the disappointing sales in September were a phenomenon around the globe. “I think that’s a trend for everybody,” he said. “Everywhere I travel I see tough economies and stressed consumers, and that hasn’t changed in the course of the year.”
Cheesewright said, “Canada has entered [a] hyper-competitive phase,” referring to the influx of newcomers such as Target, even as that retailer struggles to gain a toehold. “It’s a market in consolidation. A change in a marketplace lets the strong survive and allows you to sharpen your own tool kit.”
Canada, Mexico and the U.K. have been the primary drivers of sales in the international department. In terms of technology overseas, Asda in the U.K. is testing a stand-alone pod that’s basically an ATM for shoppers to buy groceries. “We’re sharing this experiece around the world,” Cheesewright said. “In Shanghai, you can get an order delivered in hours or pick it up from a hub in your apartment complex.”
Closer to home, Wal-Mart is testing a stand-alone pickup location in Bentonville, Ark., and expanded delivery in Denver with Wal-Mart To Go.
Charles Holley, chief financial officer, said total company guidance for sales for fiscal year 2016 is a 2 percent to 4 percent gain, or $10 billion to $20 billion of growth. Operating income is flat or slightly down. Sales for Wal-Mart U.S. are expected to rise 2 percent to 3 percent. Operating income on a reported basis should grow close to the rate of sales, he said.
In terms of store size, Supercenters in the U.S. “peaked out at 220,000 square feet,” McMillon said. “Right-sizing the Supercenter and reimaging what it does are part of the important work we need to accomplish.”
“We’ve been gradually looking at sizes for the past six years,” Cheesewright said. “The store size in the Canadian market has been reduced, and, in the U.S., it has been reduced a significant amount. What do we do with the space we have? There’s plenty of things we don’t sell. We can extend the assortment for customers.”