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TEANECK, N.J. - The chinks in the armor are showing in Bentonville. Wal-Mart Stores, Inc. said yesterday it is hunkering down, planning to sharply reduce its capital spending next year and instead work to drive higher returns at current locations.
Speaking yesterday at an analyst and investor meeting here, executives form the Bentonville, Ark.-based retailer said the change in strategy is a response to less-than stellar performance of late. It comes as the world's largest retailer posted disappointing same-store sales in its latest monthly report.
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"We aren't pleased with our performance in the short term," admitted Eduardo Castro-Wright, president and c.e.o. of Wal-Mart Stores USA. "But we are working on a number of long-term initiatives that will take a little longer to bring about results."
Those initiatives include broadening the retailer's customer base via its new market research and segmentation plan, driving returns by improving productivity in both space and labor, and assembling the right team to execute its goals.
Within three years, Wal-Mart will conduct a chain-wide rollout of its various initiatives, some of which are still in test mode, Castro-Wright said.
One of its productivity initiatives centers on the front end. "We asked our customers to name the one thing that would improve their shopping experience, and 65 percent said faster checkout and more cashiers," said Pat Curran, e.v.p. of store operations. The retailer has responded by better matching associates' hours at the front end with customer shopping patterns, said Curran. Test stores are also focusing on reducing clutter at the front end.
Meanwhile, the chain will apply the reins to cap ex, cutting capital-spending growth to between 2 percent and 4 percent in fiscal 2008, compared to this year's 15 percent to 20 percent growth, said Wal-Mart c.f.o. Tom Schoewe.
The retailer plans to build fewer U.S. stores next fiscal year: the new tally will be 625 to 660 new units, split almost evenly between U.S. and international locations. This projection includes between 265 and 270 Supercenters, five to 10 discount stores, 15 to 20 Neighborhood Markets, and 20 to 30 Sam's Club warehouse stores.
"Our long-term goal is to continue to have our capital expenditures grow at a rate equal to or less than sales growth," Schoewe said. "Additionally, over time, we expect our new capital efficiency model to reduce the impact of cannibalization."
Wal-Mart executives said their company also plans to construct two new regional distribution centers, and two new full grocery distribution centers during the next fiscal year.
In the short term, Wal-Mart will focus on maintaining its low price leadership in consumables, toys, and other areas, they added. During the holiday season, for example, Fairy Wishes Dora will retail at Wal-Mart for $25. The average market price for the toy is $39.99.
Wal-Mart will also continue to focus on "health care the Wal-Mart way," as demonstrated by its new $4 generic drug program and the rollout of in-store health clinics.
-- Jenny McTaggart