Update: Wal-Mart Executives Focus On Small Stores, Online

by Marty Cook  on Friday, Jun. 6, 2014 1:30 pm  

Bill Simon, speaking at Friday's Wal-Mart annual meeting in Fayetteville.

Retail shoppers want a different way to shop, and Wal-Mart Stores Inc. of Bentonville is doing its best to meet the new, technologically driven demand.

That was the message from Wal-Mart CEO Doug McMillon in his address at the company’s annual meeting Friday at the University of Arkansas’ Bud Walton Arena. The festivities, which capped off a week of activities, included musical performances by Pharrell, Robin Thicke, Florida Georgia Line, Sarah McLachlan and Aloe Blacc and was hosted by singer Harry Connick Jr. 

About 14,000 Wal-Mart employees were in northwest Arkansas for the week’s events.

Friday’s meeting included its share of business. Executives reported unofficial voting results that showed shareholders re-elected 14 directors to its board and rejected three shareholder proposals.

The proposals would have required an independent chairman of the board, documentation of the company’s lobbying expenditures, and documentation of the company’s recoupment of executive pay, called “clawbacks,” in which companies recoup pay from executives who engage in misconduct.

While Wal-Mart has seen U.S. same-stores sales, a key metric for retailers, decrease for five straight quarters, McMillon said Friday that the company remains strong and has the resources to improve.

To do so, McMillon said the company will have to adapt to a new marketplace, where shoppers increasingly turn to the convenience of online shopping. Throughout the week, Wal-Mart executives spoke of their efforts to tie the company’s growing e-commerce division with its U.S., international and Sam’s Club divisions.

“There are so many new ways to serve our customers,” McMillon said. “We must be stronger merchants, all of us together. That’s what Sam Walton did, and that’s what we’re going to do.”

McMillon said mobile technology has changed the fabric of retail, with people spending more time on devices like smartphones and tablets than they do watching television. McMillon said many shoppers want to shop on their time.

“We are going to make that possible,” McMillon said. “Customers will increasingly expect and require the best of both worlds; the excitement and immediacy of shopping at a store and the freedom to shop whenever they want and get merchandise the way they like. They want an experience that seamlessly adapts to their life. All this change is a good thing.”

Perspective

Established stores in the U.S. make up about 60 percent of Wal-Mart’s total sales. For the first quarter, Wal-Mart reported revenue of $114.6 billion, up 1 percent from the same quarter a year ago. But profit fell from $3.78 billion to $3.59 billion.

Bill Simon, the CEO of Wal-Mart’s U.S. stores division, said this week that Wal-Mart’s same-store sales struggles need to be put in perspective. Simon and the other divisional CEOs addressed the media in question-and-answer sessions with reporters on Thursday, and each spoke during the meeting Friday.

“Supercenters for us are still performing very well,” Simon said Thursday. “The bottom 10 percent of our stores, they’ve been a pretty big drag on us. I get asked all the time, ‘Why don’t you just close them?’ We still make a lot of money on them. They’re profitable stores.

“We don’t have a significant number of stores that are negative cash flow stores. Our problem is a high quality problem, even our worst stores, the ones that are not having the same-store sales we would like, are still very good stores,” Simon said.

Wal-Mart officials have said they plan to open between 270 and 300 smaller stores this coming year. A Supercenter is about 182,000 SF while Neighborhood Markets and Walmart Expresses are 38,000 SF and 15,000 SF.

Wal-Mart plans to open 115 Supercenters this year.

“This is the first year we have built more small stores than we have large stores,” Simon said.

Simon said the company’s Neighborhood Markets have continued to perform well, posting their 46th consecutive month of increased same-store sales. This comes as shoppers are focused on convenience, popping into a smaller store to pick up a few items and saving a Supercenter for a “stock-up” visit.

“We see the opportunity with Neighborhood Markets to go much faster than we have been going,” Simon said. “We are confident today that Neighborhood Markets will have a positive material impact on the company and that’s why we’re going quickly. We’re moving forward aggressively with Neighborhood Markets because we understand what they’re doing in the marketplace.”

Simon said he doesn’t think Neighborhood Markets are taking sales from Supercenters. He believes smaller stores are a complement to the larger ones.

“What we see is a relatively low impact on our own Supercenters,” Simon said. “They’re shopped differently by customers than Supercenters are. The stock-up trip to the Supercenter has always been very, very powerful and still is today. Neighborhood Markets do a really good fill-in and convenience job for us.”

One example Simon used was with prescriptions. Someone picking up a regular medication would schedule it around their trip to a Supercenter, but a mother of a sick child would prefer to go to a smaller store to pick up an immediately needed prescription because “hauling the kid through the Supercenter is not a good thing.”

It’s all about serving the customer, Simon said. Big store, small store, new store, what truly matters is the store that customers go to, he said.

“We’re trying to serve customers,” Simon said. “If customers want to be served that way and we’re not able to serve our customers through the larger stores, then we’ll build smaller stores. We’re thinking about it from a service-to-the-customer perspective. We’re not going to build things just because we don’t have them.”

Online

One form of service that was on most of the executives’ minds was online sales. Wal-Mart reported an increase of 30 percent to $10 billion in online sales in 2013, and officials projected another increase to $13 billion in 2014. 

As impressive as though numbers are, online giant Amazon reported a 22 percent increase to $74.5 billion in 2013.

Neil Ashe, the CEO of Global e-Commerce for Wal-Mart, started his session by showing a television commercial for a test program the company is running in Denver. Wal-Mart started a pilot program in San Francisco and San Jose in 2011 where customers could order groceries online and then have them delivered. The company has expanded the program to Denver.

In the TV spot, a shopper pulls into a Walmart parking lot, where an employee brings groceries to the customer’s car. Walmart is planning to open a similar pick-up test site in Bentonville and gave a tour of the facility on Thursday.

Wal-Mart has an active and successful grocery and pick-up and delivery service in England through the Asda supermarket chain. Ashe said the pick-up service has proved to be popular to Denver shoppers.

A year ago, Ashe had said he wasn’t sure if there was enough demand in the American market to implement a grocery delivery service.

“We are testing both delivery and pickup,” Ashe said. “I will tell you that pickup has grown faster than delivery at this point in Denver, which has been very interesting to us. One of the challenges with grocery delivery is obviously you have to have a time slot for that delivery.”

Ashe said it seems customers like the convenience of placing an order and then picking it up during the course of their day’s errands or on the way home from work.

“In a market like Denver, which is a driving market, it is proving to be very attractive … to have the convenience of picking up the order whenever she wants,” said Ashe, using the female shopper in the Denver commercial as an example. “We’re enthusiastic about that.”

Many analysts are predicting that online sales will continue to make up an increased percentage of overall sales for retail businesses. Ashe repeated the prediction that Wal-Mart expects to generate $13 billion in online sales this year.

And, even though Ashe is the head of Wal-Mart’s e-commerce division, he isn’t tied up in how sales are divided. Like Simon said, it’s about providing what the customer is requesting.

“Our goal is not to have a percentage of sales that is specifically e-commerce,” Ashe said. “Is Denver e-commerce or is it retail? I’m not sure it really matters. It is solving a problem for a customer in a new way that no one else can do. We want to do a lot more of that.

“If that ends up being 100 percent of our business that’s awesome.”

 

 

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