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2006-10-23
Tea Neck, NJ. Wal-Mart Says It Will “Reduce Growth” of U.S. Stores

Sprawl-Busters has long held that Wal-Mart is building stores to meet expectations on Wall Street, rather than to meet needs on Main Street. Placing stores 4 or 5 miles apart has led to significant cannibalization of its own stores by the retailer. When a new supercenter opens, it takes sales away from the nearby supercenter, leading to low "same store" sales growth, which is measured in sales per square foot. Over-saturation makes all stores less productive per square foot. That's why Wall Street analysts are buzzing today over plans announced by Wal-Mart at a two day financial conference, suggesting that the giant retailer is going to cut back on its expansion plans "at a slightly slower pace." The emphasis is on the word "slightly." Wal-Mart CFO Tom Schoewe said that his company's capital spending in fiscal 2008 (which begins February, 2007) will grow 2% to 4%, about one-fifth of the company's capital spending this year. "We plan to decrease the rate of growth in capital expenditures considerably, as compared to our expected sales growth for Wal-Mart's next fiscal year." Part of the cutback plan includes building fewer U.S. stores and keeping capital spending flat. Wal-Mart said it has been expanding its retail square footage at 8% per year, but in FY 2008, it will drop to 7.5%. But don't expect citizens groups fighting Wal-Mart to notice much of a difference. Between February and October, Wal-Mart has opened or relocated 212 superstores, and expects to add 21 more superstores in November, for a total of 233 superstores. At this pace, the company would annualize at roughly 280 total new or relocated superstores in FY 2007.Today the company says its going to open between 265 and 270 new Supercenters, 5 to 10 discount stores, 15 to 20 Neighborhood Market grocery stores and 20 to 30 Sam's Club warehouse stores. Total new U.S. stores will be 305 to 330 and another 320 to 330 will be added in the company's international division. The output of supercenters looks to be pretty much the same for FY 2008. Sprawl-Busters estimates that at least 30 Wal-Mart supercenters have been defeated since last January, plus at least half that number of currently on hold in the permitting process, or in court challenges. Wal-Mart is telling Wall Street what it wants to hear. "We are still very committed to growth, but our real estate projects are now being subjected to a more rigorous prioritization process," Wal-Mart Vice Chairman John Menzer told the analysts. "This store selection process will enable the company to drive higher returns by focusing on locations that make the most efficient use of capital." Schoewe said, "Additionally, over time, we expect our new capital efficiency model to reduce the impact of cannibalization." Of the 270 planned supercenters, more than half (54%) will be expansions or relocations of existing stores. "This reduction in growth is expected to result from building fewer U.S. units,": Shoewe said. The FY 2008 forecast for store growth is very similar to the FY 2006 forecast. In December of 2006, Wal-Mart said, "growth will continue in 2006 with plans to open as many as 600 new stores and clubs, including up to 230 new international stores and 370 U.S. units. In Nov, 2005 Lee Scott said, "As long as we can open Supercenters, that's where we'll put our resources. Then we can expand with Neighborhood Markets. We could be three or four times bigger in the U.S. In our five-year plan, we don't reach saturation."

What you can do: All this talk about reduced growth of U.S. units is for show. Wal-Mart got a nice bounce on its stock today by convincing analysts that the retail managers are listening to them. But the reality is, there is no real slow down in output, and whatever reduction exists is just adjusting for the twin reality that Wal-Mart is eating its own stores alive and does not need such saturation, and that local opposition from community groups has caused the company to spend a lot more to site a store, and wait longer. Stores are longer in the pipeline now, and often are lost completely. As many as 35 to 40 projects will be defeated this calendar year. Wal-Mart has been forced to slow down its units because citizen groups are putting on the break, not just same store sales fatigue. Sprawl-Busters everywhere should be thrilled that Wal-Mart will build fewer units in 2008, but the reality is that the slow-down will be barely perceptible, and the total number of new stores is far too aggressive, and continues to bear no relationship to the number of stores that are needed in the marketplace.










 
 
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