In the latest fiscal year (2011), the U.S. arm of Wal-Mart Stores, Inc. (NYSE:WMT) delivered net sales that exceeded $260 billion. Operating income was approximately $20 billion. This was accomplished through more than 3,800 stores and over 617 million square feet of selling space.
While these numbers are impressive, analysts are somewhat negative on the domestic division of Wal-Mart as comp sales, defined as sales at stores that have been open longer than a year, have been negative in recent quarters. Turning this around is the top priority of the Wal-Mart management team.
Overview of Wal-Mart U.S. Growth Strategy
- Turn around comp store sales via a four point plan
- Add new stores via a number of different formats
- Increase profitability through continued expense leveraging
Let's look at each briefly.
Four Point Plan to Boost Comp Store Sales
Point #1 - Focus On Every Day Low Prices (EDLP)
Wal-Mart has reversed strategy in recent years in doing specific cuts on various prices to return to its traditional EDLP strategy and marketing effort. EDLP refers to low prices across a broad product mix. Coupled with this effort, Wal-Mart has been marketing its price matching message in that they will match any price from a competitor.
Point #2 - More Relevant, Broader Mix Of Products
Wal-Mart is working closely with suppliers to offer the broadest mix of products possible. Wal-Mart received some negative feedback in recent years after pulling some less profitable products from store shelves. They are working to reverse this and improve the product mix available to customers.
Point #3 - Improve Layout & Remodel Program
Wal-Mart will continue to improve store layout to increase efficiency of retail space. Remodeling existing stores to improve sales for each square foot of selling space is a top priority.
Point #4 - Multi-Channel Strategy
The multi-channel strategy refers to customers being able to shop for products via brick and mortar stores and online websites. Wal-Mart is working to integrate the shopping experience across both mediums. The "Pick Up Today" campaign allows us customers to purchase online and pick up on the same day from a nearby store. Moreover, Wal-Mart is experimenting with grocery delivery in a few markets.
These four initiatives are being implemented across U.S. stores to attempt to boost sales. While these take time, the jury is still out on the effectiveness of these initiatives.
Clearly, the macro economic environment in the U.S. impacts sales for Wal-Mart as well. Unemployment remains high and consumers are pinched in a general basis. While Wal-Mart weathers tough economic conditions as good as most retailers, if consumers have less to spend, you can expect this to impact Wal-Mart's sales to some degree.
New U.S. Stores
Coupling the effort to increase same store sales, Wal-Mart also intends to grow U.S. sales via adding new stores to its mix in the U.S. market. Possibly more than ever, Wal-Mart intends to broaden its mix in the type of stores that are added.
The Supercenters have been the backbone of Wal-Mart's U.S. business and will continue to thrive in many markets. While this will continue, Wal-Mart recognizes that many consumers in different markets such as urban areas are prefer different retail formats.
Wal-Mart Neighborhood Markets - being rebranded as Wal-Mart Market - are smaller stores focusing more on fresh produce and grocery items. Wal-Mart's latest format is in the convenience store format and is called Wal-Mart Express. Wal-Mart Express stores will be smaller (approximately 15,000 sq ft) and contain grocery items and other general merchandise - some will also contain pharmacies. Wal-Mart may open as many as a few hundred of the Express stores in the near future and the first are set to open in 2011.
Wal-Mart has also opened a very small retail store on a college campus near its headquarters at the University of Arkansas in Fayetteville, Arkansas. This store called Wal-Mart on Campus is the only one of its kind, but one has to wonder if this is a future opportunity on other college campuses.
Increase Profitability: Expense Leveraging
Wal-Mart's management is exceedingly successful at finding efficiency in their businesses and leveraging expenses to boost profitability.
Typically, Wal-Mart has been able to garner double digit earnings growth via single digit sales growth, and there's no reason that this won't continue.
While analysts are repeatedly down on Wal-Mart for their U.S. business, I believe in management's ability to both increase sales and profitability at Wal-Mart U.S. With what looks to be a continued tough economic climate, Wal-Mart should be able to maintain and increase sales as they implement the strategic initiatives outlined.
If you own Wal-Mart, consider visiting my Wal-Mart Investing Page which tracks and follows the company.
Disclosure: I am long WMT.