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Speaking to analysts at Lehman Brothers' Retail Seminar last week, executives from Wal-Mart talked about their company's new direct-sourcing operation in China, saying the company has not set a target for the amount of product to be handled there. "But as a percentage of the total, it will grow over time," said Tom Schoewe, executive vp and cfo. Wal-Mart has just completed step 1: replicating the system that its previous purchasing partner had in place.

Schoewe also told analysts that the retailer has too much "non-accessible inventory" — product that is either stacked too high on fixtures, stuck in the back room or in a container on the parking lot — and which totaled $2 billion last year. "It would be a great [cost-saving] opportunity if we flowed that merchandise a lot better," he said

Schoewe also addressed how Kmart's Chapter 11 filing has affected Wal-Mart. "We have noticed a benefit," he said. "However, it's not as big a deal as we thought it would be. " It's still too early to tell, he added, as Kmart is still a "moving target."

Wal-Mart sees its Neighborhood Market format as a complementary fit to its Supercenters. Schoewe said that the retailer is looking to the 42,000- to 55,000-square-feet format to fill in gaps between supercenters. The best examples of the paired strategy so far: the Oklahoma City and Houston markets.

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