The business of big - mini-supercenters - Wal-Mart - Company Profile

DSN Retailing Today, Jan 26, 2004 by Mike Troy

The opening in late January of an intriguing variation of Wal-Mart's supercenter format creates new expansion opportunities and serves as the most recent example of how an already huge $257 billion company continues its search for new ways to grow. At only 99,000 square feet, the store is Wal-Mart's smallest domestic supercenter and is labeled on building plans as an urban supercenter prototype. The merchandise mix and store layout is similar to that found in formats twice the size, but the unassuming building with a drive-through pharmacy and single entrance sits on just 10 acres of land along one of Tampa, Fla.'s most heavily traveled thoroughfares less than five miles from four discount stores.

If successful, a mini-supercenter would give Wal-Mart a vehicle to operate in higher-density markets with scarce real estate, appease communities opposed to large stores and possibly eliminate the need for Neighborhood Markets that are less profitable than supercenters. In addition, the store could allow Wal-Mart to circumvent legislative efforts, primarily in California, that are designed to restrict the ability of retailers to sell food in large stores. The urban supercenter's size conveniently falls below the 100,000-square-foot threshold found in many of the proposed ordinances or those already adopted.

The store's opening also comes just a few months after Wal-Mart sponsored a major meeting with analysts, where the overriding theme was growth, how it will be achieved in the future and key initiatives relating to operations. Although this newest store was not publicly discussed, comments made at the meeting concerned the success of supercenters, the real estate strategy behind the concept and why five years after the first Neighborhood Market opened the concept has not been expanded more aggressively.

As Wal-Mart ceo Lee Scott noted at the Meeting. "So many of our supercenters open at $100 million a year that it actually amazes us. We wouldn't necessarily like to have a lot of $120 million, $130 million and $140 million supercenters, we would rather put another store in that market and have two stores doing $80 million or $90 million rather than one store doing $120 million."

According to Scott, Wal-Mart has found it can locate supercenters much closer together than "we ever dreamed of in our life."

Some of Wal-Mart's large supercenters are already only four or five miles apart, but with a supercenter that's less than 100,000 square feet and only requires 10 acres of land, Wal-Mart could come closer to achieving the kind of store densities common among conventional supermarkets.

Supercenters are already Wal-Mart's dominant growth vehicle and the 213 stores added during the fiscal year ended Jan. 31, 2004 brought the total to 1,471. Plans call for another 220 to 230 supercenters this year, and by the end of the decade, Wal-Mart could be operating as many as 3,000 supercenters, according to analysts.

"Our intention would be to continue to add 8% square-footage growth in the foreseeable future and leverage on top of that same-store sales growth and be able to add to the top line of Wal-Mart. As we look out over our planning horizon, we don't see a change in being able to accomplish those kind of numbers," Scott said.

Neither do most analysts who follow the Company. Revenues for the fiscal year ended Jan. 31, 2004 are forecast to total $257 billion with profits around $8.9 billion. For the fiscal year beginning Feb. 1, 2004, Wal-Mart's $12 billion capital budget includes plans for 50 million square feet of selling space, the majority of which will be in the form of supercenters. As a result, analysts expect Wal-Mart will add $28.5 billion in revenue and $1.1 billion in profits to achieve revenues of $286.2 billion and profits of roughly $10 billion by the time the fiscal year ends Jan. 31, 2005.

While that is an astronomical number relative to other retailers, Wal-Mart contends it has only a 10% share of the U.S. market and only a 3% share of the global market, leaving plenty of room for growth without the prospect of government antitrust issues.

"We don't in any way see there is some short-term or mid-term limit on Wal-Mart's growth. If we do our job right and take care of our customers and associates, then we as a company have the opportunity to continue to add to the top line," Scott said.

Based on the company's commitment to continue adding stores and assuming modest low single digit same-store sale growth, analysts expect Wal-Mart will be able to add well over $100 billion in revenue and $5 billion in profits during the next four years alone.

However, along the way, Wal-Mart can expect more of what Scott considers the disadvantages of size, namely criticism and concerns associated with being bigger than any company has ever been before. Wal-Mart got a heavy dose of criticism and concern last year. It was a year that began well enough with the being named Fortune's most admired corporation and then the subject of glowing book titled. "The Wal-Mart Decade." However, it was downhill after that as major newspapers and business magazines published articles that probed how Wal-Mart's size is influencing the national and global economy, to put in kindly, in less than desirable ways.