Wal-Mart Stores Inc., which once aggressively tried to muscle its Supercenters into communities from Vermont to California, often in the face of strong local opposition, is slowing its store openings to focus on increasing comp sales in existing units and growing e-commerce.

Only two years ago, Wal-Mart was developing new concepts to enter urban markets, including smaller Wal-Mart Express stores. While competitor Target has been moving forward with smaller flexible format units — a new 45,000-square-foot store bowed Wednesday in Manhattan’s TriBeCa — Wal-Mart in January revealed that it was shuttering the Express chain.

Doug McMillon, president and chief executive officer of Wal-Mart, speaking at the retailer’s Annual Meeting for the Investment Community, said that walmart.com is seeing traction and moving faster in terms of e-commerce sales.

“We’re bringing the new store number down,” he said. “We’ll look like more of an e-commerce company over time. We’ll still run stores, but we’ve got to build the e-commerce business.”

As the gathering was starting Thursday morning, Wal-Mart revealed that it had nearly doubled its investment in JD.com, the second-largest e-commerce business in China. Wal-Mart in June had exchanged its own e-commerce business in China with JD.com for a 5 percent stake and it now owns 10 percent.

“New stores have been a big part of our historical growth,” McMillon said. “We’re going to prioritize comp sales and open fewer stores, particularly in the U.S. We’re going to focus on accelerating e-commerce growth, including Marketplace.”

Wal-Mart’s recent $3.3 billion acquisition of Jet.com is another indication of how determined the company is to succeed in e-commerce. Marc Lore, Jet.com’s founder, who became president and ceo of Wal-Mart global e-commerce as one of the terms of the acquisition, joined McMillon on stage.

“Jet.com is a next generation e-commerce marketplace,” Lore said. “The key to winning in e-commerce is to be able to win in logistics. What I saw in existing marketplaces is that they’re inefficient. Building baskets is a lot more complicated. We thought, what if we made choosing the retailer who fulfills the basket transparent to the consumer to change their behavior and make them smarter? We encourage consumers to buy from retailers in close proximity to where they live. Consumers are building bigger baskets and saving money and we’re pulling costs out of the ecosystem.”

Lore said Jet.com has grown to $1.2 billion with more than 200 million unique visitors. “Wal-Mart has done better with Millennials than what some might have thought,” McMillon said. “Jet indexes even better with Millennials and urban customers. We’re really more alike than people might guess.”

“Jet is going to focus on urban Millennial customers and premium-type brands,” Lore said. “There are 15 million products on Jet.com and 20 million on walmart.com and we’re going to be bringing those catalogues together. You can pay with Wal-Mart Pay and we’re bringing that online so you have your entire shopping list. The ability to return to the stores is important. These are all ways that online and off-line work together.”

Wal-Mart operates 11,500 retail locations and walmart.com is the second most-visited web site – although the most visited is Amazon, which is far ahead of Wal-Mart in terms of market share in e-commerce.
“We’re going to continue to invest aggressively into being more nuanced and giving consumers more ways to get costs out of the system,” Lore said. He gave an example of buying a basket of products that’s just shy of the minimum for free shipping. Many consumers would buy something they don’t really want to reach the threshold. With new technology, Lore said the retailer will be able to monitor baskets and make adjustments such as waiving the free shipping threshold.

Asked about speculation that Wal-Mart will invest in Flipkart, an Indian e-commerce player, David Cheesewright, president and ceo of international said, “We had a cash and carry business with Bharti and we were happy to be in the small store network with them in India. India is not one of our focus markets. We’re leaning hard into China. We’ll continue to evaluate India as part of our emerging markets group. India is a very complicated country, very different than everything else. There are headlines about potential investments in India and that’s all they are – headlines.”Oliver Chen, a retail analyst at Cowan and Company, said Wal-Mart has some defenses against Amazon such as personalized connectivity through pharmacy and health care, and food and fresh product supply chain expertise.

On the other hand, Chen said, “We’re concerned about Amazon’s ability to be innovative in categories Wal-Mart can’t easily replicate through Alexa and artificial intelligence, instant video and music media products and integration, and the family of Amazon Prime-related capabilities.”

Despite McMillon’s upbeat comments about digital, Wall Street overall seemed unimpressed by the presentation, pushing Wal-Mart’s shares down 3.2 percent to $69.36.

The Capex for Wal-Mart U.S. will decline over the next three years from $6.8 billion in 2016 to $6.1 billion in 2018. Sam’s Club’s Capex will remain relatively flat at $700 million, while international will go from $2.9 billion in 2016 to $2.8 billion in 2017 to $3 billion, 2018.

The number of new Supercenters drops from 69 in 2016 to 35 in 2018; small format stores decline from 161 in 2016 to 20 in 2018. Between 190 and 200 new international units will open in 2018, a small decline from 228, and Sam’s Club will open four stores in 2018, down from 13 in 2016.

Greg Foran, president and ceo of Wal-Mart U.S., said the company is putting more Capex toward remodels than new stores, with 500 of the fleet scheduled for a facelift and 500 in line for online grocery capabilities.
“The Supercenter is profitable and we’re starting to see increasing sales,” Foran said. “Neighborhood Markets had a very solid comp result and we’re getting them to profitability more quickly. Our focus is on getting higher quality stores. Some of you have asked why we aren’t opening more Neighborhood Markets. We will have 699 and we need to get more of the existing stores to look like [a prototype] in Fayetteville, Ark. This is a lot we can do to drive comp sales in stores we already have.”In terms of guidance,

Wal-Mart expects earnings per share of $4.15 to $4.35 for fiscal 2017, and relatively flat EPS versus the Street’s positive 2.8 percent for 2018, while EPS growth for 2019 is expected to be 5 percent. The retailer expects to generate operating income of $80 billion between 2017 and 2019.

McMillon said companies can take positions on social and environmental issues and still make money. A decade ago, Wal-Mart set out goals such as creating zero waste, being 100 percent powered by renewable energy and removing harmful chemicals from its products. Today, the company has achieved those targets by 75 percent, 25 percent and 95 percent, respectively, he said.

On the social side, Wal-Mart has long been criticized by labor unions for paying low wages and offering poor benefits. The retailer invested $2.7 billion over two years to raise associate wages and provide training. McMillon said, “Ninety-nine percent of U.S. stores received a bonus in the last quarter. We’ve pledged to hire 140,000 veterans.”

Last October, a long investigation by the U.S. government into allegations of bribery at Wal-Mart de Mexico was reported to have uncovered no serious offenses, although at the time the government was believed to be looking into Wal-Mart’s business practices in India and China. McMillon didn’t directly address a report Wednesday by Bloomberg that the retailer rebuffed a proposal from U.S. prosecutors to settle for at least $600 million the corruption investigation into the retailer’s business practices in Mexico, India and China.

“We want to be a good company with good intentions, including areas like compliance and ethics,” McMillon said. “We’ve made significant investments in compliance and we’re not backing away from any of those things. As the world becomes more transparent and people can see inside the company, we want people to like what they see.”

McMillon reminded the audience that Wal-Mart’s comps have been positive for eight quarters and transactions have risen for seven quarters. “It feels like we’re on solid footing and are starting to play some offense,” he said. On the international side, 10 of our 11 biggest markets, including Canada and Walmex, are strong. We have our eyes on the U.K. at the moment.”