Discount stores still key to growth, sales to climb to $100 billion by 2000 - Wal-Mart Stores

Discount Store News, Dec 5, 1994 by Pete Hisey

While all the recent Wal-Mart hoopla has concerned supercenters, the underperforming Sam's Club division international expansion, and community attempts to keep Wal-Mart out, the discount stores remain, and will remain through most of this decade, the core of Wal-Mart's business.

With some 2,000 stores in operation, the division accounts for $54 billion of the company's $85 billion plus in projected 1994 sales, with Sam's a distant second at about $21 billion, and supercenters and wholesale distribution (McLane's, Western Publishing) each accounting for less than $6 billion.

The younger divisions will undoubtedly grow faster than the relatively mature discount stores through the rest of the decade, but the stores should continue to account for at least half of Wal-Mart's sales. About 100 stores a year will be converted to supercenters (all but six of Wal-Mart's 140 supercenters as of year- end will be conversions, with 85 of the 100 or so the chain will open next year also conversions). The chain is also opening about 100 discount department stores each year, resulting in a stable store count that will only get more productive as new, larger stores replace older ones that convert to supercenters.

Traditional stores will also be the engine with which Wal-Mart will assault the few markets where it is not a major player, because its supercenters simply occupy too much real estate, such as metro Los Angeles, metro New York and the Northwest.

A few years ago, some industry observers envisioned Kmart in a more favorable position by 1995. They predicted a tired base of undersized, rural Wal-Marts that would face a refreshed base of new or refurbished Kmarts and brand-new Targets nationwide.

They were wrong. While Wal-Mart has turned much of its attention to its other divisions, the revitalization of its older stores has blown away projections of five years ago. Hundreds of stores a year are refurbished, expanded, and relocated, resulting in a store base that is, after Target, the best in the industry. Conversely, Kmart's inability to keep up with its aggressive store remodeling and relocation program is perhaps the single most destructive contributor to that company's financial woes of the past two years.

Not only are Wal-Mart's stores newer, they're much larger too, averaging about 125,000 sq. ft., up from the fabled 110s that dominated the late '80s and early '90s. Since 1985 (or even earlier), most stores have been designed with breakaway walls and extra land specifically to make expansion easy and painless. Most stores, like the one in Knoxville, Tenn., expanded last summer, can be refurbished on the fly, with construction going on behind a black plastic curtain while most of the store continues business as usual.

A newer store in Sierra Vista, Ariz., which opened in 1988, will grow from 82,000 sq. ft. to 129,000 sq. ft. next year. Store manager Jim Royal noted that "the majority of the 46,662-sq.-ft. expansion will be used to provide additional customer space and wider aisles." But the expansion will also add a onehour photo center, a vision center and a 10-minute oil change and lube station, three departments now becoming standard in larger Wal-Mart stores and supercenters.

And, he added, the store will remain open during the entire process, which is expected to take about nine months and cost about $4 million. Sales volume increases in the first year after renovation will probably pay back a substantial protion of that outlay.

Where a store is hopeless (decrepit 50,000-sq.-ft. and 60,000-sq.-ft. models built in the '70s and early '80s), the solution has been to build newer stores across the street, then either turn the older store into a Bud's closeout opeartion or other test concept, rent it out to another retailer, or raze it and sell the property, which increases in value due to its adjacency to a brand-new, highvolume Wal-Mart.

Wal-Mart has its systems refined to a degree that a supercenter can be fully fixtured, decorated and stocked in less than a month; a traditional store takes even less time once construction is completed. Its architectural company, BSW Architects of Tulsa, has developed a computerized system that adapts the basic Wal-Mart box to local conditions and regulations, speeding up the approval process and getting construction underway much faster than at competing chains. Store development is a well-oiled machine that moves teams of store-opening experts from market to market, training local employees and setting stores to Wal-Mart's exacting standards.

In-store, the major moves of late have been to specialty stores-within-stores, a strategy that many regional chains (Ames, Rose's) have used to fight off the Bentonville Behemoth. In recent months, the chain debuted Children's Books & Video departments, which tie in kidvid, music, sound stories (tape and book combinations), books, some furniture, plush animals, miscellaneous items such as calendars and photo albums, and activity toys for infants. The departments within the 2,000-sq.-ft. store-within-a-store are further broken down by age, Fun & Learning, Adventure/Animation, Story Time, Baby/Toddler and the discounters' latest storewide category, Disney. The department duplicates merchandise found in other departments, but is evidently aimed at creating add-on sales and attracting gift-givers. Almost all prices are kept below $20.