Wal-Mart shuttering 7-year old Bud's chain

Discount Store News, August 4, 1997

BENTONVILLE, ARK -- Wal-Mart never has wanted to be in the real estate business, and the Bud's Discount City chain that it is now virtually scrapping was just a real estate play from its inception.

As Wal-Mart closed older 40,000-sq.-ft. to 60,000sq.-ft, stores to open nearby supercenters or new generation discount stores of 100,000-sq.-ft. or more, it was stuck with the leases for the older stores.

Launching the Bud's chain, named after founder Sam Walton's late brother, was a way to generate revenue out of the older stores, rather than shell out lease payments for a vacant store that it couldn't unload.

The stores Wal-Mart is relocating for a supercenter tend to be larger units and in better locations for lease resale than the first and second generation stores of 40,000 to 60,000-sq.-ft., and it is turning to other uses for vacant stores.

This spring, Wal-Mart signed a pact with Carmike Cinemas to convert some of its larger vacant stores for use as entertainment complexes to be called Hollywood Connections. The complexes will include a multi-screen cinema, an amusement games arcade and a miniature golf-course.

The first such unit is set to open the fourth quarter, or perhaps after the first of the year, in a 69,000-sq.-ft. store in Goshen, Ind. Following will be Valparaiso, Ind., 90,000-sq.-ft., and DeKalb, Ill., 80,000-sq. -ft.

Wal-Mart also is attempting to market closed properties, which amount to less than 5% of its retail square footage, for other alternative uses, spokeswoman Daphne Davis told DSN.

Examples include a store in Grenada, Miss., which town fathers bought for a civic center, and a store in Crowley, La., which the school district bought for an alternative school. Other alternative uses include a business call center and light manufacturing plants, Davis said.

Bud's also provides a way for Wal-Mart to close out its own surplus or damaged goods, getting a bit more than the pennies on the dollar that closeout wholesalers such as Consolidated Stores typically pay to relieve retailers of their excess inventory.

Plans changed recently as Wal-Mart announced plans to close 48 of the 61 remaining Bud's units and disclosed that it will probably will close the balance of 13 units as their leases expire.

Running a chain of just 13 stores isn't worth it, said Jay Fitzsimmons, senior vp for investor relations, even if some are profitable.

Wal-Mart took a pre-tax charge-off of at least $40 million to close stores and dispose of real estate for the second quarter ended July 31 the write-off could hit $50 million. Wal-Mart hadn't released its second quarter report at press time for the precise figure.

Wal-Mart owns outright 12 of the 48 to be closed, and the leases of some of the other units either are expiring or have only a short time to run, a spokeswoman said.

The after-tax write-off will be about 38% smaller than pre-tax and not seriously affect Wal-Mart's expected net profit of 35 cents a share for the second quarter. Results were running ahead of First Call projections made before Wal-Mart announced the Bud's closings. Last year, Wal-Mart earned 31 cents a share in the second period of 1996.

In 1996, Bud's sales totaled less than $200 million, or less than 1% of corporate total revenues of $104.8 billion. Some of the Bud's to be closed were profitable, but Wal-Mart did not disclose whether the chain as a whole turned a profit in 1996. The chain failed to meet Wal-Mart's goals for financial performance, a spokeswoman said.

Wal-Mart launched Bud's in 1990 and at its peak operated 83 units. All are in small towns in 15 states mostly in the South, Southeast and Mid west. Average size is 45,000-sq.-ft., but in an exception, one Bud's is 88,000-sq.-ft.

The closings mean that 1,200 Bud's employees, 20 to 30 for each store, stand to lose their jobs. But Wal-Mart will offer them positions in supercenters or large Wal-Marts, most of which are nearby.

The proximity of Bud's to newer Wal-Mart units also means that Bud's competes with standard discount stores and supercenters.

A stock in trade at Bud's was consumer electronics that had been returned and repaired. The retooled CE items were repackaged in plain brown cardboard cartons for resale at Bud's. Surplus Sam's Choice foodstuffs were another standard category, along with discontinued Wal-Mart merchandise.

At one point, Bud's also began carrying inexpensive upholstered furniture and home appliances.

To accommodate its low-income customers, Bud's launched a credit program offering low weekly payment schedules on selected items such as furniture and appliances.