Walmart said on Wednesday it is ready for a new US expansion drive in major cities using smaller and more efficient versions of its superstores, even as it continued to reduce its rate of annual square-footage growth in the US.
Mike Duke, chief executive, told the company’s annual autumn meeting with investors that the low-cost retailer’s “first priority is growth; Walmart continues to have aggressive growth plans” both internationally and in the US.
“We do have considerable opportunities to expand here in the US and especially in major metropolitan areas; and we will introduce new innovative formats here in the US,” he said.
Two years ago, Walmart began slowing the expansion of the large Supercenter format that has been the engine of its growth since the 1990s, as it faced an increasingly saturated market, with over 2,700 of the stores averaging around 187,000 sq ft.
The company said on Wednesday it expected to add just 11m sq ft to its US store base of almost 600m sq ft in fiscal year 2010, less than half the square footage it added annually at the peak of its US growth two years ago.
But while slowing growth, Walmart plans to keep US capital expenditure largely unchanged as it continues to remodel existing stores to increase sales and investment returns, while also developing a new, smaller “high-efficiency” operating model of its Supercenter.
Eduardo Castro-Wright, head of Walmart’s US stores, said the resulting increases in investment returns “will help us penetrate markets that have been traditionally difficult for us” because of higher real estate and labour costs.
“We do believe that we have now a model …that will allow us to accelerate growth by driving this high-efficiency model to places and segments were we see opportunities for growth.”
Walmart has been frustrated in previous efforts to open stores in cities including Chicago, New York and Los Angeles because of political opposition in the planning process for the Supercenters orchestrated by its union foes.
Mr Castro-Wright also said Walmart now planned to build more of its 39,000 sq ft Supermercado de Walmart Hispanic-focused grocery stores, following the success of two initial stores that opened this summer in Arizona and Texas.
“We have now the model that will allow us to …bring that format to places around America to places that will benefit from that product offering,” he said.
The average size of new Walmart stores opened in its next fiscal year will be around 8 per cent smaller than those opened in the current year.
“The writing is on the wall; we are going to smaller stores,” Mr Castro-Wright said.
He also argued that Walmart would be able to hold onto new customers acquired during the past year of the US recession, when it has outperformed most of its leading competitors.
Separately, Walmart said it was setting up global purchasing offices to handle its direct purchases of food, starting with fresh fruits and vegetables, on behalf of not only Walmart US but its stores in Canada and Latin America. Previously, it has largely bought for its stores through import agencies.
Mr Castro-Wright said the approach mirrored the model developed in the UK by its Asda subsidiary.
Pam Kohn, head of perishables purchasing, said an initial pilot involving apple purchases for had resulted in a 10 per cent reduction in the price of apples in its US stores.
Walmart also said it was amalgamating purchasing for its private label packaging, again on a multi-country basis, in a move to cut costs, and that an initial review of its supply base had already resulted in $150m of savings.
Walmart executives will outline their international and US store opening plans on Thursday.
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