Soderquist headlines Montgomery Securities conference - Wal-Mart Vice Chairman and COO Don Soderquist

Discount Store News, Nov 7, 1994 by Richard Halverson

SAN FRANCISCO -- Led by Wal-Mart vice chairman and coo Don Soderquist, executives of 13 mass market chains pitched their stocks during the 24th annual investment conference of Montgomery Securities held here at the end of September.

More than 1,700 institutional investors and analysts gathered to listen to the retail leaders, along with presentations by scores of other corporations. Montgomery helped under-write the initial public offerings of many of the companies.

In a mid-conference interview, Montgomery analyst Bo Cheadle expressed a bearish view of the future of the club business, but a modest, optimistic position on regionals that must compete with Wal-Mart and Target.

"There's room for regionals," Cheadle said, "but they need a niche. They'd better find a niche, there is no place to hide."

As for clubs, they need a catalyst to turn them around, Cheadle said. He also conceded: "I see no such catalyst."

Clubs suffer, in large part, because category killers have taken away their edge. In office products, specialty stores stock 5,000 to 6,000 skus vs. 700 at most for clubs.

Moreover, consumers tend to feel they wind up spending too much money when they shop at a club, he said. The idea of spending $100 to $500 each time they visit a club is too risky in a slow economic period, Cheadle said.

In addition, the cannibalization of sales from overstoring, such as in Dallas, scares analysts.

The following are highlights of some of the presentations:

* Wal-Mart, Don Soderquist, vice chairman and coo: International has become the company's fourth division, following discount stores, Sam's Club and supercenters. By year's end, Wal-Mart will open four Value mini clubs in Hong Kong and two full-size Sam's Clubs next year in China.

In '95, Wal-Mart will open three Sam's Clubs and one supercenter in Brazil, the first of three Sam's Clubs and three supercenters in that country.

It will enter Argentina with the first two of three Sam's Clubs by July '95 and the first of three supercenters.

In Mexico, Wal-Mart will open 10 to 12 more Sam's Clubs on top of the 19 units already there, and 10 to 12 supercenters in addition to the four that already exist.

Profits are lagging behind the 24% sales growth in '94 because Wal-Mart invested heavily in Pace, buying and converting 99 units from Kmart. Its purchase and conversion of 122 Woolco units from Woolworth Canada also impacted profits. Neither investment will become profitable until next year.

In Red Bluff, Calif., Wal-Mart opened another distribution center in September. Next year it will open another hard lines DC, a soft lines DC and it third food DC to support supercenter expansion.

In 1995, Wal-Mart will open 100 new discount stores, expand or relocate 100 more existing stores, and open 10 new Sam's Clubs and 100 supercenters.

* Staples, Tom Stemberg, chairman and ceo: Staples is shifting to smaller markets such as Greenville, N.C., and Bangor, Maine, and will focus on three business segments: small businesses with 20 workers or less; home office workers and students; and medium and large businesses.

Staples will retail through three channels: North American superstores; contract and commerical; and international joint ventures such as those it has in Great Britain and Germany. Contract and commerical volume is projected to increase to $700 million by the end of 1998 from $200 million in '94, with much of the growth coming from new big business customers.

Store profitability is projected to tally an operating profit margin of 10.33% after the third year, compared to 2% in the first year.

Staples will emphasize capital goods such as computers, now 4% of sales, under the management of Martin Hanaka, president and coo.

In Edmonton, Canada, Staples opened a new 20,000-sq.-ft. prototype that eliminates the forced entry aisle and has begun to reset all of its units.

* Bed Bath & Beyond, Warren Eisenberg, chairman and coceo: Department and store managers display an entrepreneurial spirit because all have stock options; all store managers are merchants who can tweak the merchandise mix in their stores.

BB&B keeps its expenses low by doing only minimal advertising -- reserved for new openings and four to five circulars a year, no distribution centers, and inexpensive store fixtures. This posture allows BB&B to enter markets with just a single store.

BB&B will open 12 new stores this year averaging 48,000 sq. ft., up from nine in '93, plus expand or relocate four more.

The cost of new systems, all based on an AS 400 computer from IBM, caused its operating margin to slip less than a point, but investment in systems will begin paying off in '95.

BB&B loaded up on "a lot of goods early," anticipating a good Christmas, but expects to end the year with the same inventory level of 1993, valued at $50 per sq.-ft.

* The Men's Wearhouse, George Zimmer, chairman and president: Men's Wear-house has opened 10 stores in Los Angeles, a new market.

The company licensed two designer labels, Pierre Balman and Vito Rufolo, for private label programs, and enhanced its shoe departments.