Wal-Mart Stores Inc. is investing less in building its supercenters and opting for less square footage when it does open new ones. Money is instead being spent on smaller formats and e-commerce expenses.
Still, CEO Doug McMillon views the larger, more traditional supercenters as an important part of the retailer's strategy. Wal-Mart operates more than 3,400 in the U.S. Wal-Mart will open 60-70 supercenters this year, down about half from a year ago, but they are vital to the retailer's success, McMillon said during an appearance Thursday at the University of Arkansas' 15th annual Emerging Trends In Retailing Conference.
"People want to talk about how the supercenters are yesterday's news. A well-run supercenter is a fantastic store format in this country that we'll be running for a long time," McMillon said. "But they have to be well run."
McMillon, a University of Arkansas graduate, participated in a Q-and-A session with Richard Smucker, CEO of The J.M. Smucker Co. Even as e-commerce grows, McMillon reiterated the importance of physical stores, which continue to drive the bulk of Wal-Mart revenue.
Wal-Mart generated $485 billion in revenue worldwide last year, and despite e-commerce's rapid growth, it accounted for about $13 billion.
Improving the in-store experience for customers and changing how supercenters are managed have been a focus for Wal-Mart over the past year. Same-store sales growth has been sluggish for the supercenters, often at 2 percent or below. Sales growth for e-commerce has been above 20 percent at times, and sales at smaller format Neighborhood Markets have grown between 7 percent and 8 percent in recent quarters.
McMillon noted that the nearly $1 billion in pay increases will create "two years of expense pressure related to wages" but should help boost morale.
Low wages had been viewed as a way to keep expenses down, McMillon said. He said the company went too far and found "the ditch on the other side of the road. We're trying to get it back to the middle."
McMillon said he knew it was the right time to raise wages after meeting last year with employees at a store in Denver. They pointed out an independently owned burger restaurant nearby paid $10 an hour when Wal-Mart wasn't even paying $9.
Wal-Mart's starting wage is now $9 an hour and it increases to $10 in February 2015.
Almost in conjunction with the wage-increase announcements, company executives began talking about making improvements at the store level. For all its growth online, Wal-Mart needs sales growth in store.
During a session entitled "Strengthening Our Customer Experience," Wal-Mart U.S. Chief Operating Officer Judith McKenna repeated comments made during last week's annual shareholders meeting. Wal-Mart needs "clean, fast and friendly" stores, she said.
Improvement will come, McKenna said, "not by talking about it but by taking tangible actions to improve our stores so that we can drive sales."
In-store experience continues to be important, according to Marshal Cohen, chief industry analyst with The NPD Group. For the conference, Cohen gave a presentation Thursday that underscored the importance of Wal-Mart's increased attention to its stores.
Cohen noted that shoppers drawn to Target stores by the introduction of the Lilly Pulitzer clothing line bought an average of five items. Online shoppers purchase 1.1 items on average. Impulse shopping is still very much an in-store experience. About 45 percent of purchases in store are considered impulse buys, while that figure is cut in half online.
Wal-Mart is also viewing its stores as part of its e-commerce operation. Store pickup locations for online orders are becoming more recognizable, and the company is testing grocery delivery and pickup formats across the country.
Searching for a better way to do business was important to company founder Sam Walton, McMillon said.
"We want to always respect and remember what Sam Walton did ... and be contemporary and forward-looking, just as he would have been," McMillon said. "Sam wouldn't want us looking backwards all the time. That's a good way to ruin a business."
Business on 06/12/2015