June 5, 2007
Wal-Mart Cheered for Slowing Down
Many on Wall Street are applauding Wal-Mart’s announcement last week that it would cut back on new store openings.
The announcement was actually Wal-Mart’s second in the past year, signaling it would look to focus on fixing problems at its current stores and, in effect, stop competing with itself. It has been argued that the retailer has cannibalized sales by overlapping stores in certain markets.
“The priority for a potential store is selecting a location that makes the most efficient use of capital resources and aligns with market growth priorities,” said John Menzer, Wal-Mart Stores, Inc. vice chairman and chief administrative officer in a company press release. “We also have been focused this year on reducing cannibalization of existing stores via our more strategic selection of U.S. real estate projects.”
Wal-Mart intends to open up to 200 stores this year compared to its original target of up to 270 locations. Over the next three years, the chain will further reduce annual openings to 170 per year.
The retailer said the new store opening slowdown would enable the company to achieve a higher return on its investment in the U.S., reduce capital expenditures and grow same-store sales.
Eduardo Castro-Wright, president and chief executive officer for Wal-Mart Stores U.S., said, “Through our strategy, we are pursuing high return opportunities by focusing on markets where our customer segmentation approach offers the best opportunity to create a more competitive position for Wal-Mart and drive higher comparable store sales. In addition, our U.S. plan includes a variety of initiatives designed to improve labor productivity and enhance margins.”
Discussion Questions: What is your reaction to Wal-Mart’s plan to scale back new store openings? Do you think it signals a significant shift in corporate mindset? What do you think Wal-Mart’s competitors will take from this announcement?
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Comp sales figures are easier to achieve when few new stores get built. Any chain retailer’s worst competition: their own new stores. New stores dilute loyal customers, and divert financial capital and human capital that might be invested in making the rest of the company more productive. In other words, if your best field folks are busy opening new stores, who’s coaching and leading the other stores? And Wal-Mart’s expansion into cities, particularly unionized areas and other high-cost locations like upscale suburbs, can only hurt its margins. Wal-Mart’s strength is low-cost real estate and low-cost labor in rural locations.
Even with this reduced U.S. new store development direction, the issue of growth still remains an anchor around Wal-Mart’s neck. Its pricing strategy and major marketing point of difference position, along with its target audience declining, or not spending as much, is a very difficult position to change. Hmmmmmmm
Growth is a foundation stone of my business, but years ago, when articulating the foundation stones, one principle we stated was that “Sometimes the proper avenue to growth is getting smaller.” That may be too radical for some, but it works. Pulling back on store openings is just a potentially rational deployment of this principle.
The decision to scale back store openings is sound but what’s really important is the focus on fixing current store operations. Wal-Mart has a host of woes right now and needs to solidify its brand positioning, its target customer and its marketing and merchandising strategy. If the resources and time used to focus on new store openings are instead placed on fixing what has gone astray with the current, Wal-Mart will get much farther ahead than by simply opening more doors.
Thank Goodness. Wal-Mart does need to slow down and get back to its knitting.
The question on the table is: does it have a viable strategy to really win at same-store sales? Their attempt at upscale merchandise hasn’t gone well. Wal-Mart can’t be all things to all people, and I’m not sure they have learned that lesson.
Comp sales mean nothing to Wal-Mart since they already over perform with high sales per sq. ft. relative to their competitors. Sales could drop 30% in each store and they would still be performing better than most of their competitors. In this case, comp sales is only important to outsiders who are trying to handicap the market.
Wal-Mart always downplays their success. When they say they will build 200 Supercenters, they probably will build 250. Saying they are cutting back helps get the anti-Wal-Mart extremists off their back and give the extremists a false sense of victory. Wal-Mart reminds me of a football player faking an injury only to hammer you on the next play.
Two hundred Supercenters in one year is more than SuperTarget has built in 10 years. Think about it. At $80 million in sales for each Supercenter, that is about $16 billion in new sales just on store growth. Probably 95% of their competitors are below $16 billion for their entire company.
I don’t think Wal-Mart could care less about their stock price. If they stay slow and even on price they don’t attract unwanted attention. If they doubled their stock price and then it fell by 25%, there would be panic. If the stock price did double, the Walton family would become super billionaires and not just your regular back woods Arkansas kind. With the income gap between rich and poor continuing to widen, the negative attention to their wealth is the last thing they need.
Wal-Mart is a strange bird. Over the last five years, we have heard official announcements that it will open as many as 500 stores per year, and now coming down to 170 per year. About three years ago, it justified the 500 figure with such ideas as, “Not all stores have exactly the same product mix, so we are not going to be cannibalizing.”
Wal-Mart’s behavior, if you analyze lots of detail and gather lots of data, is that its first priority, far above all other aims, is to make stockholders wealthier–many companies focus on this, but Wal-Mart’s actions make it unusual in how high above other interests it puts this one. Ideally, Wal-Mart would be able to be the richest it possibly could be if it had a variety of “service channels,” that included many different facility sizes and concepts and brands. It could have channels such as restaurants, car dealerships, high-end boutiques, beauty salons, and even hospitals and healthcare clinics. You name it. Wal-Mart-owned businesses could provide us with everything we need, from a to z. Outrageous, of course. But it is only a matter of degree. Going from big-box discount store to neighborhood “markets” was outrageous in its own way.
Some companies look for every single thing they can possibly do to make more money, somehow someway somewhere. Compare this to companies such as Disney or the old HP or many others, which not only said, but acted, “We will make money when we serve our customers and our communities and our workers.” In their actions, their focus was different. I can’t tell you how many times I have heard people say, “Any business’s purpose is to make money.” I joyfully disagree. Any business’s purpose is to serve its customers, communities, staff, and vendors as fully and efficiently as possible–when you do this, you make a lot of money. We have wonderful examples of this thinking in some very large companies that have been around many decades. And then we have examples of the opposite, where almost anything you do is justified, as long as it “increases shareholder value.”
I greatly enjoy reading the theories about Wal-Mart and what they should do next. If anything, we should be going to Wal-Mart and asking their advice since they are the ones that are so successful. In my experience with them, they analyze things repeatedly until they are satisfied and then go full bore with their decisions. And they have never been afraid to question their success and are continually re-inventing themselves. It is fun to critique some of their “blunders” and to boast about show how much smarter we would have been in the same circumstance, but in the final evaluation they have made a lot more smart moves than bad ones by far. If Wal-Mart were a sports team, they wouldn’t be any fun at all, winning all the time would get old quick. Not to them, but to everyone else.
The true question here is whether or not Wal-Mart can effectively manage these new store openings, not on how many there are. This has been an issue with Wal-Mart regardless of the number of stores. Whether the number changes from 270 to 200 stores, it is evident that Wal-Mart will continue to have issues with growth at new stores, effectively managing their store service, employees and the entire customer experience. Really, the actual question goes to Wal-Mart’s ability to change its customer experience, deliver better customer service, and grow their business inside the confines of their current corporate structure.
It appears that Wal-Mart is finally slowing down so they can determine what and where they want to be in the future. In the past five years, Wal-Mart has attempted to be “all things to all people” and lost sight of what made them successful in the first place.
I think those people that either knew Sam Walton, or read enough about him to understand how he thought, would agree that Wal-Mart would be different today, and wouldn’t have had some of the problems they have today if Sam was alive and in charge.
I believe that Wal-Mart’s competitors should be concerned, not celebrating as Wal-Mart has the resources to grow and get stronger once they get back to their roots and remember the principals that originally made Wal-Mart the world’s largest retailer.
Reading the comments from most of the above, it would seem the contributors actually believe Wal-Mart is slowing its growth. Is their a chance Wal-Mart is simply playing cat and mouse with the analysts and the competitors?
Notice the news is only focusing on supercenters? What about Neighborhood Markets? Is it possible that Wal-Mart will acquire one of the many struggling grocers and convert them to neighborhood markets? BI-LO, Winn Dixie, A&P Sav-a-Centers, Albertsons LLC, Bruno’s, etc. There is no shortage of struggling supermarket chains to be acquired. I think Wal-Mart wants to grow and grow big, while at the same time they are telling us they are slowing down.
I would never take Wal-Mart too lightly and I would always read between the lines in what they tell us. They say one thing but I have a feeling they are on a terror like General Patton marching to Berlin.
Good for them. Seems a prudent decision, considering the magnitude of change happening in Bentonville. Taking away some of the constant distraction of increasing the store count will allow them to look inward and develop the next generation of Wal-Mart.
Retail analysts have long fixated on same-store sales, or comp stores, as one of the defining metrics of retail success. Wal-Mart’s “disappointing” same-store sales results have often been mentioned as their reasons for scaling back store openings.
But, as retail markets mature and become more online, this age-old metric begins to diminish in importance. Wal-Mart has 15 prosperous stores within a 25 mile radius of where I live outside of Baltimore–an area with about 4 million people. That’s about a store for every 250,000. The also have six Sam’s Clubs also doing well. Recently they announced they’ll build a brand new supercenter.
Meanwhile, their web site is doing a brisk business, growing in double digits every year. And, they’ve integrated their site to allow store pickups, with their “Site to Store.”
Will the new store supercenter take away business from the existing stores? Of course. Will the web-site? You betcha. Will the Sam’s Store cannabilize, too? Probably. Is this bad? No way.
The point is that a modern multi-channel retail should focus on the region, not the store, for its key metric. It is not “comp store” that should be the myopic focus. It’s “comp region.” Or better yet, “comp customer.”
The slowdown in store expansion and the stock buyback are both smart moves that should have positive impact on Wal-Mart’s share price. However, Wal-Mart’s announcement about slower expansion is a tacit admission that it has a lot of work to do within its existing square footage. You can’t lay all the blame for slow comp growth on overexpansion and cannibalization. Wal-Mart has real issues with merchandising, brand positioning and the in-store experience that they need to figure out. Reaching internal consensus on how to solve these problems may be the biggest challenge faced by Wal-Mart’s management.
What will Wal-Mart’s competitor’s take from this announcement that Wal-Mart is scaling back on plans to open new stores? There will be several different reactions and most of them will be wrong.
The decision by Wal-Mart to slow down new store openings is sound. They have to be a little more selective in their real estate moves, due not only to cannibalization but also to the cost of urban real estate and the union issue. Many current retailers have had to do some “re-invention”(ala Safeway & Lifestyle) to energize same store sales. It will be interesting to see what strategy Wal-Mart takes as price has been their main weapon and in many of the existing markets the equation of price reduction that equals margin reduction generally leads to price wars not sales increases.
Wal-Mart’s decision to scale back new store openings is a sign that the management is beginning to accept that the U.S. market is saturated for now. With the reduction of new store openings, Wal-Mart will be better able to focus on existing stores and that can only mean stiffer competition. Better focus on existing stores will also, hopefully, mean better bottom-line results.
Mark’s got it right. I mean, how long can you keep on adding to store counts until you reach the point of diminishing returns? It’s common sense, although not all that common in the retail industry, as sundry disasters over the years attest. Wal-Mart’s other difficulties also definitely need addressing. All in all, a smart move to slow it down.
I think this is a good decision for Wal-Mart. Within 10 miles of my home there are two “new” Supercenters under construction and set to open in late summer or early fall. That is on top of two existing Supercenters and at least three regular Wal-Marts in nearby proximity. It’s no wonder same store sales are getting harder and harder to come by–when you are quite effectively competing with yourself.
Opening new stores is an expensive (but easier) route to revenue growth. It is more difficult to achieve growth in existing stores, and Wal-Mart has not been doing too good with its same-stores-sales growth number lately. Since this is the number that retail equity analysts watch the most, it is no wonder that the decision to focus more on improving sales at existing stores was well received by Wall Street.
It has a long way to go on this front though. For example, average sales per square foot for Wal-Mart is around half that of Costco. But increasing sales in existing stores is no easy task and would involve really getting a good handle on the profile of their existing customers, their needs and preferences and how they spend their money at places other than Wal-Mart (this is going to be tough because they already enjoy a large market-share). More importantly, Wal-Mart will also need to get a very good understanding of trade area demographics of their existing stores, to measure and understand what portion of the trade area sales they are missing and why, and what other profitable categories they could be getting into, based on local needs.
The U.S. market is not saturated with WMs, at least geographically. The real issue is community resistance to new locations, which equates to psychological saturation. The negative press regarding WM’s “shock and awe” obliteration of local businesses, reneging on fiscal agreements with various cities, employing illegal aliens, gender bias, dumping healthcare costs on the communities where they’re located, and corruption at the highest levels of their company have taken their toll. Kudos to WM for “spinning” community push-back into an initiative to slow growth, but the fact is they didn’t have a choice.
For goodness sake, how many other comparable retailers will open 200 superstore locations next year? How many that could even be consider (by themselves, not by Wal-Mart), opening 10% of that amount?
Label it any way you chose, a slowdown, a correction, an adjustment–it matters not. The numbers are still there exponentially by comparison.
There will still be the impact of a Wal-Mart supercenter on 200 markets (or close to it). That’s substantial by any means of measure.
Same store sales? Okay, so they had one or two blips on the radar, yet I wouldn’t bet on that continuing. If you do so, you do at your own peril.
Wal-Mart’s competitors (if there are any) will do well to remind themselves that it’s still 200 to your 2-5-10 or 20 at best. They will do well to find focus on their customers, their markets and their own sales and take little notice of this event. It’s a non-event. Wal-Mart remains on course towards world domination of retail. If you think not, you may wish to question your own naivety.
Wal-Mart has long been growth-addicted, since its share price has so many expectations built into it. The rapid pace of store openings even had a positive effect on comp store sales reports, since these are calculated based on stores open more than one year, but fast-growing newer stores contribute what I call a “second year effect” that upwardly biases comp store figures.
A slowdown in U.S. openings had to come eventually because all the easy locations (those with sufficient numbers of local households and not too much community resistance) are getting covered. We should consider that Wal-Mart has slowed down because it has to and that it has portrayed its response to market conditions as a visionary strategic decision to influence investors. It is no coincidence, I think, that the company also stepped up its stock buy-back program in the same breath.
No one has mentioned the true measure of analysis–net present value. Even if same store sales are down, that is irrelevant (except to short-term Wall Street types). If they can add shareholder value by adding more stores, they should do it. What if they earn $500 million of value from each store opening? It doesn’t matter that same store sales went up 1.3% instead of 2.5%! If their sales and profits are high enough (and $$ are what matter) then they should keep opening. Of course, it’s a separate (and perhaps more important) issue about fixing current stores to ensure they remain strong.
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Comp sales figures are easier to achieve when few new stores get built. Any chain retailer’s worst competition: their own new stores. New stores dilute loyal customers, and divert financial capital and human capital that might be invested in making the rest of the company more productive. In other words, if your best field folks are busy opening new stores, who’s coaching and leading the other stores? And Wal-Mart’s expansion into cities, particularly unionized areas and other high-cost locations like upscale suburbs, can only hurt its margins. Wal-Mart’s strength is low-cost real estate and low-cost labor in rural locations.
Even with this reduced U.S. new store development direction, the issue of growth still remains an anchor around Wal-Mart’s neck. Its pricing strategy and major marketing point of difference position, along with its target audience declining, or not spending as much, is a very difficult position to change. Hmmmmmmm
Growth is a foundation stone of my business, but years ago, when articulating the foundation stones, one principle we stated was that “Sometimes the proper avenue to growth is getting smaller.” That may be too radical for some, but it works. Pulling back on store openings is just a potentially rational deployment of this principle.
The decision to scale back store openings is sound but what’s really important is the focus on fixing current store operations. Wal-Mart has a host of woes right now and needs to solidify its brand positioning, its target customer and its marketing and merchandising strategy. If the resources and time used to focus on new store openings are instead placed on fixing what has gone astray with the current, Wal-Mart will get much farther ahead than by simply opening more doors.
Thank Goodness. Wal-Mart does need to slow down and get back to its knitting.
The question on the table is: does it have a viable strategy to really win at same-store sales? Their attempt at upscale merchandise hasn’t gone well. Wal-Mart can’t be all things to all people, and I’m not sure they have learned that lesson.
Comp sales mean nothing to Wal-Mart since they already over perform with high sales per sq. ft. relative to their competitors. Sales could drop 30% in each store and they would still be performing better than most of their competitors. In this case, comp sales is only important to outsiders who are trying to handicap the market.
Wal-Mart always downplays their success. When they say they will build 200 Supercenters, they probably will build 250. Saying they are cutting back helps get the anti-Wal-Mart extremists off their back and give the extremists a false sense of victory. Wal-Mart reminds me of a football player faking an injury only to hammer you on the next play.
Two hundred Supercenters in one year is more than SuperTarget has built in 10 years. Think about it. At $80 million in sales for each Supercenter, that is about $16 billion in new sales just on store growth. Probably 95% of their competitors are below $16 billion for their entire company.
I don’t think Wal-Mart could care less about their stock price. If they stay slow and even on price they don’t attract unwanted attention. If they doubled their stock price and then it fell by 25%, there would be panic. If the stock price did double, the Walton family would become super billionaires and not just your regular back woods Arkansas kind. With the income gap between rich and poor continuing to widen, the negative attention to their wealth is the last thing they need.
Wal-Mart is a strange bird. Over the last five years, we have heard official announcements that it will open as many as 500 stores per year, and now coming down to 170 per year. About three years ago, it justified the 500 figure with such ideas as, “Not all stores have exactly the same product mix, so we are not going to be cannibalizing.”
Wal-Mart’s behavior, if you analyze lots of detail and gather lots of data, is that its first priority, far above all other aims, is to make stockholders wealthier–many companies focus on this, but Wal-Mart’s actions make it unusual in how high above other interests it puts this one. Ideally, Wal-Mart would be able to be the richest it possibly could be if it had a variety of “service channels,” that included many different facility sizes and concepts and brands. It could have channels such as restaurants, car dealerships, high-end boutiques, beauty salons, and even hospitals and healthcare clinics. You name it. Wal-Mart-owned businesses could provide us with everything we need, from a to z. Outrageous, of course. But it is only a matter of degree. Going from big-box discount store to neighborhood “markets” was outrageous in its own way.
Some companies look for every single thing they can possibly do to make more money, somehow someway somewhere. Compare this to companies such as Disney or the old HP or many others, which not only said, but acted, “We will make money when we serve our customers and our communities and our workers.” In their actions, their focus was different. I can’t tell you how many times I have heard people say, “Any business’s purpose is to make money.” I joyfully disagree. Any business’s purpose is to serve its customers, communities, staff, and vendors as fully and efficiently as possible–when you do this, you make a lot of money. We have wonderful examples of this thinking in some very large companies that have been around many decades. And then we have examples of the opposite, where almost anything you do is justified, as long as it “increases shareholder value.”
I greatly enjoy reading the theories about Wal-Mart and what they should do next. If anything, we should be going to Wal-Mart and asking their advice since they are the ones that are so successful. In my experience with them, they analyze things repeatedly until they are satisfied and then go full bore with their decisions. And they have never been afraid to question their success and are continually re-inventing themselves. It is fun to critique some of their “blunders” and to boast about show how much smarter we would have been in the same circumstance, but in the final evaluation they have made a lot more smart moves than bad ones by far. If Wal-Mart were a sports team, they wouldn’t be any fun at all, winning all the time would get old quick. Not to them, but to everyone else.
The true question here is whether or not Wal-Mart can effectively manage these new store openings, not on how many there are. This has been an issue with Wal-Mart regardless of the number of stores. Whether the number changes from 270 to 200 stores, it is evident that Wal-Mart will continue to have issues with growth at new stores, effectively managing their store service, employees and the entire customer experience. Really, the actual question goes to Wal-Mart’s ability to change its customer experience, deliver better customer service, and grow their business inside the confines of their current corporate structure.
It appears that Wal-Mart is finally slowing down so they can determine what and where they want to be in the future. In the past five years, Wal-Mart has attempted to be “all things to all people” and lost sight of what made them successful in the first place.
I think those people that either knew Sam Walton, or read enough about him to understand how he thought, would agree that Wal-Mart would be different today, and wouldn’t have had some of the problems they have today if Sam was alive and in charge.
I believe that Wal-Mart’s competitors should be concerned, not celebrating as Wal-Mart has the resources to grow and get stronger once they get back to their roots and remember the principals that originally made Wal-Mart the world’s largest retailer.
Reading the comments from most of the above, it would seem the contributors actually believe Wal-Mart is slowing its growth. Is their a chance Wal-Mart is simply playing cat and mouse with the analysts and the competitors?
Notice the news is only focusing on supercenters? What about Neighborhood Markets? Is it possible that Wal-Mart will acquire one of the many struggling grocers and convert them to neighborhood markets? BI-LO, Winn Dixie, A&P Sav-a-Centers, Albertsons LLC, Bruno’s, etc. There is no shortage of struggling supermarket chains to be acquired. I think Wal-Mart wants to grow and grow big, while at the same time they are telling us they are slowing down.
I would never take Wal-Mart too lightly and I would always read between the lines in what they tell us. They say one thing but I have a feeling they are on a terror like General Patton marching to Berlin.
Good for them. Seems a prudent decision, considering the magnitude of change happening in Bentonville. Taking away some of the constant distraction of increasing the store count will allow them to look inward and develop the next generation of Wal-Mart.
Retail analysts have long fixated on same-store sales, or comp stores, as one of the defining metrics of retail success. Wal-Mart’s “disappointing” same-store sales results have often been mentioned as their reasons for scaling back store openings.
But, as retail markets mature and become more online, this age-old metric begins to diminish in importance. Wal-Mart has 15 prosperous stores within a 25 mile radius of where I live outside of Baltimore–an area with about 4 million people. That’s about a store for every 250,000. The also have six Sam’s Clubs also doing well. Recently they announced they’ll build a brand new supercenter.
Meanwhile, their web site is doing a brisk business, growing in double digits every year. And, they’ve integrated their site to allow store pickups, with their “Site to Store.”
Will the new store supercenter take away business from the existing stores? Of course. Will the web-site? You betcha. Will the Sam’s Store cannabilize, too? Probably. Is this bad? No way.
The point is that a modern multi-channel retail should focus on the region, not the store, for its key metric. It is not “comp store” that should be the myopic focus. It’s “comp region.” Or better yet, “comp customer.”
The slowdown in store expansion and the stock buyback are both smart moves that should have positive impact on Wal-Mart’s share price. However, Wal-Mart’s announcement about slower expansion is a tacit admission that it has a lot of work to do within its existing square footage. You can’t lay all the blame for slow comp growth on overexpansion and cannibalization. Wal-Mart has real issues with merchandising, brand positioning and the in-store experience that they need to figure out. Reaching internal consensus on how to solve these problems may be the biggest challenge faced by Wal-Mart’s management.
What will Wal-Mart’s competitor’s take from this announcement that Wal-Mart is scaling back on plans to open new stores? There will be several different reactions and most of them will be wrong.
The decision by Wal-Mart to slow down new store openings is sound. They have to be a little more selective in their real estate moves, due not only to cannibalization but also to the cost of urban real estate and the union issue. Many current retailers have had to do some “re-invention”(ala Safeway & Lifestyle) to energize same store sales. It will be interesting to see what strategy Wal-Mart takes as price has been their main weapon and in many of the existing markets the equation of price reduction that equals margin reduction generally leads to price wars not sales increases.
Wal-Mart’s decision to scale back new store openings is a sign that the management is beginning to accept that the U.S. market is saturated for now. With the reduction of new store openings, Wal-Mart will be better able to focus on existing stores and that can only mean stiffer competition. Better focus on existing stores will also, hopefully, mean better bottom-line results.
Mark’s got it right. I mean, how long can you keep on adding to store counts until you reach the point of diminishing returns? It’s common sense, although not all that common in the retail industry, as sundry disasters over the years attest. Wal-Mart’s other difficulties also definitely need addressing. All in all, a smart move to slow it down.
I think this is a good decision for Wal-Mart. Within 10 miles of my home there are two “new” Supercenters under construction and set to open in late summer or early fall. That is on top of two existing Supercenters and at least three regular Wal-Marts in nearby proximity. It’s no wonder same store sales are getting harder and harder to come by–when you are quite effectively competing with yourself.
Opening new stores is an expensive (but easier) route to revenue growth. It is more difficult to achieve growth in existing stores, and Wal-Mart has not been doing too good with its same-stores-sales growth number lately. Since this is the number that retail equity analysts watch the most, it is no wonder that the decision to focus more on improving sales at existing stores was well received by Wall Street.
It has a long way to go on this front though. For example, average sales per square foot for Wal-Mart is around half that of Costco. But increasing sales in existing stores is no easy task and would involve really getting a good handle on the profile of their existing customers, their needs and preferences and how they spend their money at places other than Wal-Mart (this is going to be tough because they already enjoy a large market-share). More importantly, Wal-Mart will also need to get a very good understanding of trade area demographics of their existing stores, to measure and understand what portion of the trade area sales they are missing and why, and what other profitable categories they could be getting into, based on local needs.
The U.S. market is not saturated with WMs, at least geographically. The real issue is community resistance to new locations, which equates to psychological saturation. The negative press regarding WM’s “shock and awe” obliteration of local businesses, reneging on fiscal agreements with various cities, employing illegal aliens, gender bias, dumping healthcare costs on the communities where they’re located, and corruption at the highest levels of their company have taken their toll. Kudos to WM for “spinning” community push-back into an initiative to slow growth, but the fact is they didn’t have a choice.
For goodness sake, how many other comparable retailers will open 200 superstore locations next year? How many that could even be consider (by themselves, not by Wal-Mart), opening 10% of that amount?
Label it any way you chose, a slowdown, a correction, an adjustment–it matters not. The numbers are still there exponentially by comparison.
There will still be the impact of a Wal-Mart supercenter on 200 markets (or close to it). That’s substantial by any means of measure.
Same store sales? Okay, so they had one or two blips on the radar, yet I wouldn’t bet on that continuing. If you do so, you do at your own peril.
Wal-Mart’s competitors (if there are any) will do well to remind themselves that it’s still 200 to your 2-5-10 or 20 at best. They will do well to find focus on their customers, their markets and their own sales and take little notice of this event. It’s a non-event. Wal-Mart remains on course towards world domination of retail. If you think not, you may wish to question your own naivety.
Wal-Mart has long been growth-addicted, since its share price has so many expectations built into it. The rapid pace of store openings even had a positive effect on comp store sales reports, since these are calculated based on stores open more than one year, but fast-growing newer stores contribute what I call a “second year effect” that upwardly biases comp store figures.
A slowdown in U.S. openings had to come eventually because all the easy locations (those with sufficient numbers of local households and not too much community resistance) are getting covered. We should consider that Wal-Mart has slowed down because it has to and that it has portrayed its response to market conditions as a visionary strategic decision to influence investors. It is no coincidence, I think, that the company also stepped up its stock buy-back program in the same breath.
No one has mentioned the true measure of analysis–net present value. Even if same store sales are down, that is irrelevant (except to short-term Wall Street types). If they can add shareholder value by adding more stores, they should do it. What if they earn $500 million of value from each store opening? It doesn’t matter that same store sales went up 1.3% instead of 2.5%! If their sales and profits are high enough (and $$ are what matter) then they should keep opening. Of course, it’s a separate (and perhaps more important) issue about fixing current stores to ensure they remain strong.