RETAIL JUGGERNAUT: WAL-MART PLANS 300 NEW STORES WORLDWIDE
Byline: Evan Clark
NEW YORK — Despite concerns about a weak Christmas, Wal-Mart’s global expansion isn’t letting up. Next year, the mega-retailer plans to add 300 stores — 40 million square feet — and focus most of the empire building on supercenters. It’s the largest annual space increase ever for Wal-Mart.
The retail heavyweight announced its growth goals Monday, which were only mildly tempered by officials suggesting that high oil prices would limit gains this holiday season, and that Wal-Mart hasn’t yet gotten its act together with its Web site. The site was shut last weekend for an overhaul to get set for holiday selling, marking the third time Wal-Mart unplugged the site for a relaunch since walmart.com’s launch in 1996.
At an analysts’ meeting Monday in Springdale, Ark., Lee Scott, president and chief executive, said the holiday season would be more “traditional” and conceded that it would not be “the bloom that we had last year.” For fiscal 2001, though, he told the audience of analysts that the company isn’t as pessimistic “as what many of you would be.”
Scott said higher oil prices would have an adverse affect on customers’ purchasing power, noting that it now takes $16 to fill up his Volkswagon Beetle. Ulysses Yannas, an analyst with Buckman, Buckman & Reid, said higher gas prices hurt Wal-Mart more than many other retailers, since Wal-Marts are primarily located in suburban areas.
Despite this additional pressure, Scott said customers are expected to spend money on key items that have been selling well, such as prepaid cell phones and scooters.
Wal-Mart will not increase advertising for the holiday season. Instead, Scott said the company “will try to make our relationship with the customer more meaningful within the store itself.”
Wal-Mart’s Web site, since its inception, has been difficult to navigate and riddled with product fulfillment problems. In March, Jeanne Jackson, former chief executive officer of Banana Republic, took over as ceo of Walmart.com.
“It’s a characteristic of Wal-Mart to keep trying until they succeed,” Yannas said. “Wal-Mart has always taken its time to learn anything new that they are involved in.” Still, he said Wal-Mart, while known to be a careful spender, is not afraid to sustain losses once it determines how to proceed. For example, in 1994, Wal-Mart paid $335 million to buy 122 stores from Canada’s Woolco, lost money for a long time, but currently owns 40 percent of the discount retail market in Canada.
In a statement outlining the growth strategy, Scott noted that the 40 million square feet of new space represents an 8 percent increase over the fiscal 2001 yearly total.
For the fiscal year beginning Feb. 1, 2001, Wal-Mart expects to expand its domestic presence by about 40 discount stores and 170 to 180 supercenters, which carry general merchandise as well as grocery, food and beverage products. Supercenters are still a relatively under-developed sector in the U.S. Approximately 100 to 110 of the new supercenters will be expansions or relocations of existing discount stores while the rest will enter new territories.
The company said Sam’s Club would open 40 to 50 U.S. sites, about half of which will be relocations or expansions of existing locations. The division will also continue its remodeling program with approximately 100 projects next fiscal year.
Internationally, the company plans to grow in existing markets by 100 to 110 units, including new stores, clubs and relocations. In Mexico, the units will also include several restaurants, department stores and supermarkets. In Germany, the company will continue the remodeling of all of the acquired hypermarkets.
Lehman Bros. analyst Jeffrey M. Feiner said the aggressive growth “reaffirms our belief” that Wal-Mart will continue to successfully penetrate the $750 billion food, health and beauty aids market.
“We believe that supercenters will be the largest driver of future earnings growth, accounting for approximately 45-50 percent of earnings gains going forward,” said Feiner. He added that with 835 units in place, supercenters “are quickly gaining critical mass and achieving a high pretax return on investment” of between 23 to 25 percent by the third year in operation. Feiner expects Wal-Mart will have 1,400 supercenters by 2005, and 2,000 by 2008.
Wal-Mart also plans to add almost seven million square feet of distribution space over the year, including three new regional general merchandise distribution centers, two new food centers and two fresh food centers.
Wal-Mart also reported Monday that net sales for September jumped 10.5 percent to $17.30 billion against $15.66 billion in the year-ago period. Comparable-store sales for the entire company rose 4.8 percent, in line with projections between 4 to 6 percent. Although Wal-Mart store sales were up 4.2 percent in the period, they weren’t up as much as last year’s 7.6 percent.
On its monthly taped conference call, Wal-Mart officials said cooler weather last week boosted sales of fall goods and moved the company’s overall average toward the middle of it’s projected comp range after previously running at the low end. Wal-Mart had told analysts it was expecting same-store sales between 4 to 6 percent for the month. The discount chain was within its range, while Sam’s Club beat plan.
At the Wal-Mart discount chain, most apparel categories, including outerwear, sold well during the month. Other strong sellers were appliances, stationery, books, toys, pet supplies, health and beauty aids, and bedding. Stores in the West, Northeast and parts of the South did the best. Wal-Mart said average ticket was good, but traffic was “a little soft.”
At Sam’s Clubs, top sellers were health and beauty, food, floral, office equipment, men’s and women’s apparel, photo, furniture, basic apparel and pharmaceuticals.
Wal-Mart is expected to become one of the few discounters to meet its plans in what appears to have been a tough month for discounters. Same-store sales at Target are expected to rise between 1 and 3 percent versus a 2 to 4 percent projection, while Kmart’s same-store sales are expected to be up 2 to 3 percent versus a plan of 3 to 5 percent. Same-store sales at Shopko and Dollar General are each expected to be flat or down 2 percent.
Merrill Lynch expects comps in its broadline index to increase 2 to 3 percent for September, missing the lower end of its 2.5 to 3 percent plan. The pace compares with a 5.6 percent clip in September 1999 and a 3.8 percent gain over the last 12 months.
But analysts said sales picked up during the fifth week of the month.
“Sales appear to have picked up slightly toward the end of the month after a few sluggish weeks as weather cooled which boosted apparel sales for discount stores and department stores alike,” said Richard L. Church, at Salomon Smith Barney.
Salomon Smith Barney’s broadline index is expected to gain 3.4 percent, with same-store sales at department stores ahead 1.1 percent on average and general merchandisers, which includes discounters, ahead 4.4 percent.
Merrill Lynch’s Dan Barry also noted that sales are currently at the lower end of plan for department stores after being below plan every week in August and in each of the past three months. But he said issues such as the economic slowdown, higher fuel prices and the weak stock market could curb sales improvement in the second half.
Among the disappointments for September are expected to be J.C. Penney, with comps seen down between 3 and 5 percent, and Gap, with comps down between 8 and 10 percent.
Those seen on plan include Federated, with a projected 3 percent same-store increase; Kohl’s, up between 4 and 6 percent; May, up between 1 and 2 percent. Sears is expected to beat plan, with a gain between 1 and 3 percent. Some specialty chains are expected to outperform, including Talbots, surging between 8 to 10 percent; and The Limited, 5 to 7 percent.
While the economy may be slowing, Yannas said that usually bodes well for the discounters because “people trade down in price.” Regarding earnings, Scott told analysts that “we are committed to maintain the 15 percent shareholder return.”
At the end of September, the Bentonville, Ark.-based discounter operated 1742 Wal-Mart stores, 835 Supercenters, 469 Sam’s Clubs and 13 Neighborhood Markets domestically. The company also operates units in Mexico, the United Kingdom, Canada, Germany, Brazil, Puerto Rico, China and Korea.