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Wal-Mart Focused On Getting Better

Bentonville, Ark. — Wal-Mart admitted that its assortment is “behind the competition” for better goods carrying middle and higher price points, and the retailer is in the process of improving its offerings in these categories.

“We need to ramp that up and better meet the needs of all customers coming to our stores,” explained Thomas Schoewe, executive vice president and chief financial officer during Bank of America's 35th annual investment conference last week.

“We're not capturing the share of wallet of customers,” he continued. “We're well represented at opening price points, probably better than others, but not as well represented at the middle and higher price points, so we're addressing that.”

Examples cited include the addition earlier this year of Springmaid branded 400-count cotton sateen sheets, “which we are offering at a much better value than our competition,” he said. “We're always going to sell a lot of 128-count sheets, but we hadn't done a good job of representing mid or higher price points in sheets.”

The home categories are also being revamped with more contemporary looks in categories like top-of-bed and lighting, for example.

Emphasizing this point, Schoewe quoted Wal-Mart's head of apparel and home merchandising, Claire Watts, as saying, “We have to have the courage to be more contemporary.”

Other higher-end goods Wal-Mart is offering include: digital televisions, which Schoewe said comprise roughly 20 percent of the company's TV sales; digital cameras and MP3 players; and better ladies' apparel fashions under the private label George, which was recently repositioned at the front of the department.

Wal-Mart apparel fashions for women were recently featured in Vogue magazine and in a fashion show in New York.

“We're not abandoning the opening price point, but we're working on the higher tickets, too,” Schoewe said.

Schoewe offered “a teaser” of more reorganization plans to come for Wal-Mart U.S., which the company will share in October.

As Wal-Mart works on its merchandising initiatives, it is also addressing concerns from the analyst community about the retailer's remaining growth opportunities in the U.S. The company acknowledged during the presentation that is has added new units in markets where it already operated stores, creating an “impact on ourselves, or an internal cannibalization, if you will,” Schoewe said.

Nonetheless, Wal-Mart recently conducted an analysis in which it found “at least 2,700 opportunities to put new stores or clubs on the street — the biggest piece of that 2,700 being supercenters,” he said. “And keep in mind we have a collection of discount stores — stores that don't have food in them, yet.”

Wal-Mart has identified 1,200 existing discount units that can be expanded into supercenters. Of those, 1,000 have already been approved internally for such expansion and external construction has begun, he added.

This year, Wal-Mart is adding 55 million square feet, this growth coming from, partly, 240 to 250 new supercenters.

“We're able to grow equal to or faster than we guided last year,” he said. “It's a big footprint, growing at about eight percent. Supercenters are a big deal, and international is really ramping up nicely.”

Lastly, Wal-Mart reported its operating margin at 5.8 percent, which Schoewe described as “actually below the prior year, so what's happening here is that our largest individual operation, Wal-Mart U.S. , is not meeting one of its stated objectives, and that is to grow earnings faster than sales.”

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