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February 22, 2011

On the money: Wal-Mart remains focused on US turnaround

Wal-Mart Stores plans to focus on "every day price leadership" and to offer the broadest assortment possible as part of a four-part plan to turnaround its US business after the retailer recorded a "disappointing" domestic fourth quarter.

Wal-Mart Stores plans to focus on “every day price leadership” and to offer the broadest assortment possible as part of a four-part plan to turnaround its US business after the retailer recorded a “disappointing” domestic fourth quarter.

Speaking after Wal-Mart recorded a 0.5% decrease in net sales in the US during its fourth quarter today (22 February), Wal-Mart US president Bill Simon said the company is implementing the plan, which he expects will “improve performance in our existing stores”.

He said the company would deliver a “consistent every day low price on a basket of goods” and look to offer the broadest range possible, boost the efficiency of moves to remodel stores and improve returns. “We will change our remodelling programme to right-size merchandise categories and eliminate remodel disruptions. We will continue to drive efficiencies through our remodelling programme to reduce capital costs and expenses,” Simon said.

He said Wal-Mart has reduced its capital expenditure costs for fiscal 2012, reducing the projected range from US$7.5-8bn to $6.5-7bn, while continuing to plan for an additional 11m square feet of selling space.

He said the company will also work to improve access for customers by “leveraging Wal-Mart’s strengths to expand multi-channel initiatives”.

Additionally, the company announced the long-awaited launch of its small-format stores in the US. The company said the development of its small format is “progressing ahead of schedule” and that it plans to open its first Wal-Mart Express stores in the second quarter. It plans to operate the stores in both rural and urban locations.

Simon emphasised that for the full year, the US division “again delivered strong operating income”, while continuing to leverage operating expenses. “The P&L is in excellent shape,” he said. “All we need is top-line growth”.

He said that its food division delivered positive low single-digit comparable-store sales during the fourth quarter. The additional assortment the company put back into grocery “increased our relevancy for consumers,” said Simon, as it brought back many of the opening price point items to help generate traffic and loyalty.

Simon added that the modular changes for SKU add-backs in food were mostly completed by November and contributed to better sales.

The Wal-Mart US boss said the division is working with suppliers to reduce inflationary pressure where possible and only pass on price increases when they cannot be avoided.

In the fourth quarter, inflation in dairy, meat and produce were somewhat offset by lower prices in snacks, beverages and dry grocery. However, weather issues have affected crop availability in produce and the company expects to see continued inflation in fresh food categories.

He still expects the division’s productivity initiatives to help it leverage expenses in the first quarter of the new fiscal year, even on lower sales, and expects gross margin to be flat to slightly up for the quarter.

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