Wal-Mart Stores’ executive vice president and chief financial officer Brett Biggs at Tuesday’s Bank of America Consumer & Retail Conference as Wall Street responded to analysts who questioned aspects of the behemoth’s business and its large investments in employee wages and e-commerce.
“We want to improve our returns and stock price,” Biggs acknowledged in response to an analyst who commented on Wal-Mart’s low return on investment. “When we announced last year the wage investment [$2.7 billion over two years] and returned $10 billion to shareholders in the form of dividends and share repurchase, we wanted investors to understand that we are delivering to them as we are building the business.”
Biggs said he can “feel and see the difference” of the wage increase. “It’s paying off. Our clean, fast, friendly scores are going up. The other thing we’ve seen is that inventory’s a lot better, down 2.9 percent year-over-year. It helps with in-stocks. We put a lot of investment into training to ensure we have a higher-quality associate. HR is seeing better candidates. There’s a lot of places where you’re starting to see a payoff.”
Craig Johnson, president of Customer Growth Partners, told WWD that “It’s clear the front line operations have improved at Wal-Mart U.S.” The retailer, which grew same-store sales 0.7 percent in the fourth quarter, is losing out on small basket stock-up trips due to its anemic traffic growth, Johnson said.
Johnson also cautioned that Aldi is expanding to 2,500 stores and Primark has only started its U.S. growth. Both of which represent threats to Wal-Mart for their low-price offerings of groceries, in Aldi’s case, and apparel and accessories, in Primark’s.
As always, Wal-Mart is emphasizing its low prices. “Millennials shop us pretty heavily and it’s one of our most value-conscious generations,” Biggs said. “We’re about value and also about convenience, which particularly matters to Millennials.”
Pumping up profit margins was behind Wal-Mart’s decision to build future gas stations without longtime partner Murphy USA. “Fuel’s been a big part of our business for some time,” Biggs said. “We still have a good relationship with Murphy. Fuel is a differentiator for us. It’s a way to show price to customers and drive traffic into the stores. We want to have that as a bigger piece of the puzzle going forward.
“Lower fuel prices from a transportation standpoint and cost of goods had an impact on fourth-quarter profit margin,” Biggs added.
Wal-Mart’s international business is a market by market proposition, with Canada and Mexico “doing very well. The U.K. is challenging. The consumer is winning in the U.K. China is a market we’re committed to. It’s a bit slow right now, but has longer-term potential.”
Wal-Mart wants to be nimble and responsive to consumers’ growing dependence on mobile and e-commerce, but it’s hard to move a $482.2 billion machine.
The retailer is hoping to appeal to Millennials, with its online grocery. “We drive 260 million customers to our stores every week,” Biggs said. “We’re one of the top three Web sites. Opening new fulfillment centers is allowing us to get goods closer to customers. It shortens delivery times.”
Online grocery “ensures that shoppers stay inside the Wal-Mart ecosystem and that we get new shoppers,” Biggs said. A test in Denver showed that 25 percent of customers were new to Wal-Mart.
Consumers are paying down debt and saving money, Biggs said. “In an election year like this, it’s on customers’ minds as they listen to news. They hear low interest rates, and even if customers don’t know what that means to them, it gets into their psyche.”
Biggs noted that when Wal-Mart closed its Express chain, it represented “less than 1 percent of our revenues and less than 1 percent of our square-footage base. You’re seeing us make decisions more quickly. We learned a lot from the Express stores. Wal-Mart needs to do things with scale. We think there’s a customer who can be served with Neighborhood Markets.”
Asked why Wal-Mart isn’t spinning off Sam’s Club, Biggs said, “We’re taking strategic initiatives around merchandising. With the low stockkeeping unit business that the club channel is, you’ve got to be right with all those skus.
“We pulled out some skus that were important to business members that we probably shouldn’t have,” Biggs admitted. “For the different products you see, sometimes it’s the same vendor. There are benefits of keeping Wal-Mart and Sam’s together. We’re very comfortable with where we’re at, but we want to get better.”