Rogers, Ark., – In opening remarks at the company’s 21st Annual Meeting for the Investment Community, Wal-Mart Stores, Inc. (NYSE: WMT) President and CEO Doug McMillon outlined the company’s growth strategy, including plans to invest in new capabilities and to continue improving the customer experience at all Walmart stores. McMillon addressed how Walmart is well-positioned to meet the needs and preferences of an ever-evolving customer base.
Improving on four key customer dimensions – price, assortment, experience and access
McMillon said, “Customers make their shopping decisions based on four key dimensions – price assortment, experience and access. What we can offer them, and how we compete across those dimensions, is changing.
“Today, a customer has a desire for more items, more assortment, more choice than ever before,” he continued. “We have tens of millions of customers visiting us weekly online and through our mobile apps looking for information, product options and then buying merchandise from us in stores and online. We’re known for assortment and we will be in the future.”
Discussing price and experience, McMillon went on to say, “At Walmart, we serve value-conscious customers that come from all walks of life and all income levels. Price matters to our customers and it always will. As a company, being a low cost operator is in our DNA. This will never change and we will be the price leader, across a broad assortment, everywhere we operate. Experience is about customer service. From our associates in stores to our engineers and data scientists, we’ll invent new ways to surprise and delight customers.”
McMillon noted that the ways customers access Walmart is being redefined. “There is a growing consensus that the future of retail is not just in-store and not just online. The winners in retail will be those that can put them together. Frankly, we think we’re already doing the harder part. Locations matter because convenience matters. We have the stores, the associates, and the expertise in the physical world that others will need to build.”
McMillon continued, “To capture the upside of our strategic advantages, we need to develop a more seamless relationship with our customers. We won’t just be a store on the street. We’ll support our customers’ lives, with them in the driver’s seat, to save them money and time. We’ll give customers the choices they want and need by integrating digital and physical retail. As we have many times before, we’ll exceed our customers’ expectations, and as a result, we will win the new era of retail.”
McMillon also spoke about the state of the company: “We have an important purpose – saving people money so they can live better. Our company is built on a foundation of strong values and integrity. Compliance continues to be a priority for us and a key to building trust with our customers and other stakeholders. However, we go beyond compliance to make a difference on sustainability and other big issues. Our stores are part of their communities. We fight hunger and provide disaster relief while creating opportunities for our associates. We are a company where you can go as far as your hard work will take you. Last year, more than 170,000 people got a promotion in our U.S. business.”
Enterprise-wide approach
McMillon said leadership fully recognizes how quickly customers’ expectations are changing, which requires Walmart to think and act differently.
“In the past, we’ve tended to roll up our plans from markets and segments, but this year we’ve started with an enterprise-wide approach. The internet, mobile, data and technology present opportunities across the world and across our businesses to better serve the changing customer,” he said. “We’ve taken a fresh look at where we want to play – what businesses, markets, formats, and services we need and how to win – what our customer value proposition should be.
“Our strategy will guide our approach to capital discipline,” McMillon continued. “We will change the mix of our capital spend through reductions in areas we have invested in historically to fund investments in new growth opportunities. Specifically, we will moderate the growth of investments in stores, and we will increase our investments in e-commerce.
Winning now
McMillon outlined what the company is doing to win now, noting that improving the company’s short-term performance is a priority across all of Walmart’s segments and markets.
“Our supercenters in the U.S. should be delivering positive comps consistently. Our combination of pricing, in stock, service levels and merchant skills will generate improved performance in our supercenters. Our Neighborhood Markets continue to be a bright spot in terms of comp sales.”
He said Sam’s Club is thinking creatively about the future of its business and has made some changes with membership rewards and credit offerings designed to strengthen its position and performance. In e-commerce, Walmart is continuing investment in its new technology platform, rolling it out to customers, continuing to build its next generation fulfillment network and expanding assortment.
McMillon highlighted three key points that will drive the business going forward:
“First, we’re going to position ourselves to do a better job serving customers. We can create a next generation customer proposition through the combination of what we do with price, assortment, access and experience. We will save them money and time.
“Second, our priority is growth. Driving demand is the only sustainable way to deliver returns over time.
“Finally, we’ll manage capital in a disciplined, thoughtful manner.”
Wal-Mart executives also presented its capital expenditure plans for the next fiscal year ending Jan. 31, 2016 at its 21st annual meeting for the investment community. Total capital spending for fiscal year 2016 is projected to range between $11.6 and $12.9 billion, including approximately $1.2 to $1.5 billion for e-commerce and digital initiatives.
“This is an exciting time for Walmart, as there are so many new ways to serve customers. Exceeding customer expectations has always been our goal, and we have short-and long-term opportunities to do that even better,” said Wal-Mart Stores, Inc. President and CEO Doug McMillon. “We’ll change the mix of our capital spend next year to provide greater access, while continuing to focus on price leadership, service, and a broad assortment. We’ll give customers the choices they want and need in ways that only Walmart can.”
The company also indicated that as a result of a tougher sales environment than it anticipated a year ago, it now expects to grow net sales for the current fiscal year between 2 and 3 percent on last year’s $473.1 billion. The company indicated in February that it expected net sales growth to be at the low end of its guidance provided last October of 3 to 5 percent.
Charles Holley, Walmart’s executive vice president and chief financial officer, outlined the company’s financial priorities for growth and detailed the investment and expansion plans for fiscal year 2016.
“Our business and customers continue to evolve and so will the way we deploy capital. We will invest more heavily in e-commerce initiatives, while temporarily moderating our global physical growth, particularly larger stores,” Holley explained. “We are focused on creating an endless aisle and appealing to our customers’ changing needs.”
Holley also discussed the financial performance of the company’s e-commerce business and provided more insight into certain financial metrics.
“Globally, we expect to finish this year with approximately $12.5 billion in e-commerce sales,” said Holley. “Looking forward we expect an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and we anticipate growth over the three-year period from fiscal years 2016 through 2018 to average 30 to 40 percent.
“The greatest investment of capital and in operating loss for our e-commerce operations will come over the next 18 to 24 months, and then we would expect to see that investment start to moderate in fiscal 2018,” Holley added.
The company expects net sales to increase by 2 to 4 percent next year.
“This translates into approximately $10 to $20 billion of net sales growth,” Holley said. “Operating expenses will grow at a rate somewhat faster than sales growth and operating income will be flat to slightly down, given our investments in technology, e-commerce and digital.”
Holley also discussed the importance of the increased investment in e-commerce.
“We expect capital investments in e-commerce worldwide to be between $1.2 and $1.5 billion next year,” Holley explained, “and these investments will include technology, infrastructure and other areas to support e-commerce and digital initiatives to serve customers.”
Walmart U.S. details
In February 2014, Walmart U.S. increased its original fiscal 2015 projected capital investment by $600 million to a range of $6.4 to $6.9 billion due to an acceleration of approximately 150 small format openings. However, as a result of the timing of certain planned small format openings, Walmart U.S. now expects to open approximately 240 small format units in fiscal 2015, and carry over approximately 20 units into fiscal 2016.
The company also indicated that during the testing of its Walmart Express format, the analysis showed customers rely on these stores for a variety of reasons, including grocery fill-in trips, last-minute dinner plans and picking up prescriptions. These patterns closely align with how customers also shop the Neighborhood Market format, which has become a recognizable brand that customers identify as a high quality, local grocery store. Therefore, the company will rebrand Walmart Express as Neighborhood Market and will utilize this brand for all small format stores, regardless of square footage.
“We know that our supercenters are an important format for the stock-up trip, but we want to be thoughtful about our investment, ensuring that we align the space to evolving customer needs,” said Walmart U.S. President and CEO Greg Foran. “To do this, we will moderate supercenter growth in fiscal 2016. Our investment in Neighborhood Markets will go forward because they continue to show strong results across the box and they provide our customers with convenient access to grocery, pharmacy services, and other quick-trip needs.”
Fiscal year 2016 capital investments are projected to range between $6.1 and $6.6 billion. The forecast includes new stores, remodels, conversions, relocations, logistics, e-commerce and technology infrastructure, and reflects the additions of new units that will expand Walmart U.S.’s retail space by approximately 15 to 16 million net retail square feet. The company expects to open between 60 and 70 supercenters and 200 to 220 Neighborhood Markets.
Sam’s Club details
Sam’s Club will spend approximately $0.9 billion to open about 20 clubs this year, including relocations and expansions. Sam’s Club is also remodeling approximately 55-60 clubs this year.
“Our new clubs continue to perform well. Starting in the third quarter of this year, our new clubs incorporate several layout improvements, including an expanded fresh area and a combined health and wellness solutions center. These updates enhance the member shopping experience, and drive stronger sales and leverage labor efficiencies,” said Sam’s Club President and CEO Rosalind Brewer.
During fiscal year 2016, Sam’s Club will open approximately 9 to 12 clubs, including relocations and expansions. Remodeling is slated for between 60 and 65 clubs. Sam’s Club is projecting a reduction in capital expenditures to approximately $0.8 billion from its revised fiscal 2015 estimate of $0.9 billion. Sam’s Club will continue to invest in membership and merchandise capabilities.
“We are reducing the number of new club openings for next year and accelerating technology initiatives that integrate our physical locations with our digital capabilities,” Brewer explained.
Walmart International details
In February 2014, Walmart International indicated that it expected capital expenditures to range between $4.0 and $4.5 billion and for net square footage to range between 12 and 14 million square feet for fiscal year 2015. As a result of fewer new store openings in several key markets around the world, it now expects fiscal 2015 capital expenditures and net square footage additions to range between $3.8 and $4.1 billion and 9 to 10 million square feet, respectively.
Walmart International will continue to invest in organic growth across its markets next year. Capital expenditures are expected to range between $3.7 and $4.2 billion. New store openings in fiscal 2016 are expected to add between 10 and 13 million square feet.
“Our capital guidance for fiscal year 2016 reflects the actions we are taking to build a platform for sustainable growth in our five largest markets around the world,” said Walmart International President and CEO David Cheesewright. “We are managing our portfolio to be a best-in-class operator through innovation, making compliance a competitive advantage and winning with an e-commerce strategy that offers a unique shopping experience for our customers across all channels.”
Global eCommerce details
Walmart Global eCommerce President and CEO Neil Ashe outlined the progress made during the past year on the company’s e-commerce strategy.
“We are delivering best in class e-commerce capabilities that we are combining with the assets of the world’s largest retailer to engage with customers in new ways. We have delivered the core components of our new global technology platform. We are expanding our next generation fulfillment network to reach our customers fast and efficiently, and we’re building new data capabilities to enhance our customer experience” said Ashe.
Ashe announced that next year Walmart will build new online fulfillment centers in Georgia and Pennsylvania, each over 1 million square feet. These centers will be part of its next generation fulfillment network that includes dedicated online fulfillment centers, shared distribution centers, and ship-from-store locations that are all tied together by one of the biggest and most efficient transportation networks in the country. Walmart will also add new fulfillment centers in Brazil and China.
The company plans to spend capital of approximately $1.0 billion for e-commerce and digital initiatives this fiscal year and between $1.2 and $1.5 billion next year.
About Walmart
Wal-Mart Stores, Inc. (NYSE: WMT) helps people around the world save money and live better – anytime and anywhere – in retail stores, online, and through their mobile devices. Each week, more than 250 million customers and members visit our 11,100 stores under 71 banners in 27 countries and e-commerce websites in 11 countries. With fiscal year 2014 sales of over $473 billion, Walmart employs approximately 2 million associates worldwide. Walmart continues to be a leader in sustainability, corporate philanthropy and employment opportunity. Additional information about Walmart can be found by visiting http://corporate.walmart.com on Facebook at http://facebook.com/walmart and on Twitter at http://twitter.com/walmart.
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