Small formats loom larger at Walmart

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BENTONVILLE, Ark. — Faced with a tough sales environment and changes in customer shopping patterns, Walmart will trim its overall capital spending next year but continue a strong rollout of Neighborhood Market stores.

The big retailer plans to open between 180 and 200 Neighborhood Markets in fiscal 2016, which begins in February. Walmart is on track to debut roughly 170 Neighborhood Markets in the current fiscal year.

Walmart reported its plans for store openings, which also call for a slowdown in Supercenter openings, at its 21st annual meeting for the investment community. In addition, the company lowered its current year sales forecast to an increase of between 2% and 3%, compared with the chain’s earlier forecast of 3% to 5% sales growth this year.

While cutting back on Supercenter expansion, Walmart plans to shift more capital dollars to e-commerce and digital initiatives next year, up to as much as $500 million in additional spending compared with the current budget for e-commerce and digital. The moves reflect acknowledgement by the new leadership at Walmart that the retailing environment is changing rapidly.

“There is a growing consensus that the future of retail is not just in-store and not just online,” president and chief executive officer Doug McMillon said at the October 15 investor meeting. “The winners in retail will be those that can put them together. Frankly, we think we’re already doing the harder part. … We have the stores, the associates and the expertise in the physical world that others will need to build.”

Walmart executive vice president and chief financial officer Charles Holley said the company’s plan calls for “temporarily moderating our global physical growth, particularly larger stores” while the e-commerce initiatives are being built up. “We are focused on creating an endless aisle and appealing to our customers’ changing needs,” Holley said.

At its meeting a year ago with the investment community, a Walmart executive noted that the Supercenter “remains our primary format for growth.” That sentiment has changed over the past 12 months as the Supercenters struggle to reverse lagging sales.

As customers’ shopping preferences continue to shift, Walmart will slow the growth of Supercenters. The retailer expects to open 60 to 70 Supercenters next year, compared with 120 new Supercenter locations expected to open in the current fiscal year.

At the same time, Neighborhood Markets are becoming the company’s top performer. McMillon said Neighborhood Markets “continue to be a bright spot in terms of [comparable-store] sales.” Neighborhood Markets, all of which have pharmacies, average 40,000 to 45,000 square feet, which is one-fourth the size of a typical Supercenter.

As reported earlier this year, Walmart is in the midst of rebranding its smallest format, Walmart Express, as Neighborhood Markets. The company will utilize the latter name for all small-format stores, regardless of square footage, going forward. Express stores can be as small as 12,000 square feet, and not all of the units have pharmacies.

McMillon told the investor community that Walmart will continue its efforts to better meet customer needs across “four key dimensions” — price, assortment, experience and access. As part of this effort, the company wants to develop a “more seamless relationship” with customers, whether they are shopping in stores or ­online.

Walmart’s e-commerce business will account for about $12.5 billion in sales this year, and the company said it would like to increase the current total by about 25% next year. The forecasted growth for e-commerce over the 2016-2018 period is “to average 30% to 40%” annually.

Overall, Walmart expects to add between 26 million and 30 million net retail square feet in the fiscal year beginning in February 2015. This compares with retail square footage growth of 32 million to 34 million square feet in the current year.


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