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Scott to BBB: 'I'm Watching'

Brent Felgner -- Home Textiles Today, October 11, 2004

Bentonville, Ark. — Wal-Mart's most senior executives last week preached the retail gospel according to Sam with a renewed passion, insisting to an audience of financial analysts it's a softer, kinder, gentler giant with growth fires still burning. In the process, they indicated soft home is targeted for growth and acknowledged Bed Bath & Beyond as a chief competitor.

"We are going to be the low-price leader. We are going to be the assortment leader. We are going to continue to focus on (key areas)," said CEO Lee Scott during the company's annual analysts' meeting here. "We're going to get better in soft home, we're going to get better, as we have, in apparel, and in Sam's Club we're going to get better at treasure hunt items."

And, while reiterating its commitment to Everyday Low Prices (EDLP) on its shelves, it also referenced its equal commitment to being the Everyday Low Cost (EDLC) operator and buyer.

The formal presentations recalled moments of the old-time Wal-Mart Sunday-go-to-meeting intensity that routinely wowed the financial community and media during the heyday of founder Sam Walton. And Scott sealed that memory with references to one of Walton's favorite practices that became imbued in the Wal-Mart culture.

"We are in the retail units (every week) understanding what is happening at the customer level. We're in the competition, whether it be Walgreens, or Bed Bath & Beyond, or Tractor Supply, or Target, or Costco or whoever else. We are out, and we are in those."

While the company very apparently took pains to reinforce its growth themes along with those of sensitivity and fairness — a response to criticisms and thousands of lawsuits — Wal-Mart also emphasized that it was being more transparent in this meeting than ever before. In the opening minutes, Scott told the analysts, "I'm working on my sarcasm," later moving on to the legal and diversity portions explaining, "It's also about us doing better at doing the right things."

The softer side of Wal-Mart notwithstanding, nothing will get in the way of the growth steamroller. In addition to its share of nearly 9 cents of every retail dollar spent in the United States, CFO Tom Schoewe acknowledged it also controls just more than 3 percent of worldwide "formal" retail sales. It sees massive growth moving forward in its International division, while domestically its Supercenters will be the principal growth vehicle. Of the more than 500 stores and 55 million square feet of new retail space slated to open next year, at least 250 units will be Supercenters.

"And it's not free," Schoewe said. "The price tag for what you see here (FY '06 openings) is a number around $14 billion."

Schoewe said the company's real estate operation has more than "1,000 projects in the pipeline" with three years of growth approved internally. More projects will be added, he said.

Locating those Supercenters and other formats will necessarily mean more cannibalization — it uses the term "impacts" — of its own stores, currently at a cost of about 1 percent of sales.

"But for this internal impact, or cannibalization, our 5 percent comps (last year) would have been 6 percent," Schoewe explained.

On an individual store basis, the opening of a new closer-in Supercenter negatively impacts the existing store's sales by about 7 percent in the first 12 months, he said.

"When you go 24 months from that point of impact, forward, where do we end up? We end up with that same set of stores actually at a higher place than what started with 24 months earlier," Schoewe added. "So you don't have to be a math wizard to figure out that if you take that good performance and add to that all the new stores that provided that impact in the first place, our market share is clearly, clearly better off."

That's also reflected in the stores' financial returns, he said, as well as enhancing the customer experience. He did not, however, directly address the expense side of the equations.

Among the other presentations, Mike Duke, president and CEO of Wal-Mart Stores USA, emphasized the developing flexibility of store formats, including the 99,000-square-foot urban prototype recently opened in Tampa, Fla., which he termed a success. He noted that in 1999, there were 10 stores recognized for producing $100 million or more in sales. Last year, 290 stores received that recognition.

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