Wal-Mart poises its operations for ‘Impact’ in current holiday season—and in years to come
BENTONVILLE, Ark. —Expect to hear the phrase “Project Impact” a lot from Wal-Mart during the next five years. The phrase represents a new store format and the length of time in which Wal-Mart plans to re-merchandise and remodel its entire base of more than 3,500 U.S. stores.
Stores slated for remodeling will be brought up to a new standard that features a colorful paint scheme, new interior and exterior signage and new fixtures and adjacencies. The space dedicated to every department has been reduced to open up stores with the goal of creating more inviting and consistent customer experiences to drive sales in key categories such as food, apparel, home, electronics, health and pets.
The new stores Wal-Mart opened throughout the year sported elements of the updated look, and more recently, the company remodeled 30 existing stores in markets nationwide, among them a supercenter in Rogers, Ark., that was toured last month by financial analysts as part of the company’s 15th annual analyst and investor meeting. The massive remodeling program comes as Wal-Mart dials back the rate of expansion for its U.S. supercenters and reduces the average new store size. Next year, plans call for between 125 and 140 new supercenters, most in the range of 140,000 square feet to 170,000 square feet. Compare those plans to just a few years ago when supercenter expansion peaked in 2006, with 276 new units, most of which were closer to 200,000 square feet.
Meanwhile, the pace of remodeling activity will pick up considerably. According to the company, about 12% of its store base will be converted to the Project Impact format by the end of the current fiscal year in late January 2009. Next year, between 500 and 600 stores will be remodeled, and when those units are combined with newly-constructed Project Impact stores, 32% of the retailer’s domestic store base will be converted by the end of the next fiscal year in late January 2010. By 2014, the conversion program will be complete, according to a timetable presented to analysts. Senior executives who addressed the financial community stated that the strategy fits with the company’s efforts to improve capital efficiency, increase return on investment and generate shareholder returns.
“We are placing some distance between ourselves and our competition,” cfo Tom Schoewe told analysts during a presentation in which he touched on Wal-Mart’s conservative approach to financial management, massive cash-flow-generating capabilities and an investment grade AA credit rating that gives the company unfettered access to credit markets at rock-bottom rates. “How many companies could stand before you today and say that their balance sheet is stronger today than it was a year ago?” Schoewe asked during his presentation.
Wal-Mart’s financial strength is a key reason why executives are convinced the company will be in an even stronger position years from now. President and ceo Lee Scott said the current economic climate is an opportunity for Wal-Mart to further distance itself from competitors. “We see this as the opportunity to widen our moat,” he said. “I don’t really want to apologize for being positive, but I am. I think—without in any way sounding arrogant—because these are difficult times for our customers and our competitors, this is Wal-Mart time. This is the kind of environment that Sam Walton built this company for.” The environment for this holiday season promises to be particularly challenging, considering consumers are grappling with uncertainty and are under pressure on a variety of economic fronts. Even so, Scott is unfazed, especially as gas prices have receded and restored a degree of disposable income to consumers. “The position that we are in worldwide, where the customer has faith in us and they trust us to have great prices on name-brand merchandise and other products, is what positions us for this holiday season,” Scott said. “It is clear in this environment that the customer is more cautious and more thoughtful about what they buy and they are also more thoughtful and careful about when they buy it.”
While Wal-Mart arguably is one of the best-positioned retailers heading into the holiday season and beyond, Scott also shared a view that the broader retail industry can take comfort in. “It is not unusual in these times for people to actually go out of there way to treat their family well and to make sure they celebrate as a unit those things they can control, when in much of their life right now they don’t feel in control,” he said.