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Walmart expanding small store fleet based on fresh- and pharmacy-driven growth

BY Michael Johnsen

BENTONVILLE, Ark. — Fresh and pharmacy is the key to smaller-box retailing, Walmart reported Thursday as it announced plans to increase its capital investment in smaller formats from 120 to 150 new stores for the fiscal year to between 270 and 300.  

“Customers’ needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” stated Bill Simon, Walmart U.S. president and CEO. “Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips. By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through ecommerce, we provide our customers with anytime, anywhere access to our brand.”

The small store fleet has continued to deliver positive comp sales and traffic increases each quarter. Comp sales for Neighborhood Market stores grew approximately 4% for fiscal year 2014, driven by fresh and pharmacy, the retailer reported. 

"Health and wellness continued its momentum, delivering a low single-digit positive comp," Simon told investors Thursday morning. "Our prescription business was particularly strong, with a mid-single-digit positive comp due in part to inflation. This helped offset pressure from a soft flu season, which also adversely impacted our over-the- counter business," he said.

“Neighborhood Market is performing comparable or favorable to leading grocers,” said Simon. “Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail. This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash.”

Walmart currently operates 346 Neighborhood Markets and 20 Walmart Express stores. The Express units have performed well and are being expanded beyond the initial three-market pilot. As a result of its more aggressive plan, Walmart U.S. projects to end fiscal year 2015 with net retail square footage growth of approximately 21 million to 23 million square feet across all formats, versus its original projection of approximately 19 million to 21 million square feet. The projected capital expenditures and square footage details exclude the impact of future acquisitions.

“In addition to providing best-in-class one-stop shopping at supercenters, we believe that accelerating our small store expansion will allow customers to choose where and when to shop based on their needs," Simon said. "Our small store expansion will also strengthen our market share and create greater efficiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience.”

To fund this additional growth, the company is revising its capital expenditures forecast for the Walmart U.S. segment to $6.4 billion to $6.9 billion, up from an initial range of $5.8 billion to $6.3 billion. This reflects the increased small store growth and the current pipeline of supercenters, which remain an essential part of the company’s strategy. In total, across supercenter and small store formats, Walmart U.S. plans to open 385 to 415 units in fiscal 2015, adding to the more than 4,200 stores currently open.

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Safeway confirms grocer is exploring possible sale

BY Michael Johnsen

PLEASANTON, Calif. — Safeway on Wednesday afternoon confirmed it is in discussions concerning a possible transaction involving the sale of the company. However, the company declined to comment further at this time. "Although the discussions are ongoing, the company has not reached an agreement on a transaction, and there can be no assurance that these discussions will lead to an agreement or a completed transaction," Safeway stated as part of its earnings release. 

Earlier this week, Credit Suisse research analyst Ed Kelly speculated that an outright sale to Cerberus/Kroger would be the best-case scenario for investors.

Safeway is postponing its annual investor conference, which had been scheduled for early March 2014, the grocer announced. 

Separately, the company has decided to distribute the remaining 37.8 million shares it owns of Blackhawk Network Holdings (approximately 72.2% of the outstanding Blackhawk shares) to Safeway stockholders. Currently, the plan is to make the distribution on a pro rata basis to all Safeway stockholders in a transaction intended to be tax-free to Safeway and its stockholders. However, if the company consummates a sale transaction, the distribution may be taxable. The timing and details of the proposed distribution will be determined in the near future, and further announcements will be made when those decisions have been finalized.

In addition, Safeway owns 49% of Casa Ley S.A. de C.V., the fifth largest food and general merchandise retailer in Mexico based on sales. Based on Casa Ley’s improving performance, the company believes it is an appropriate time to explore alternatives to monetize its investment in Casa Ley. 

Safeway reported sales and other revenue totaled $11.3 billion in the fourth quarter of 2013, a 0.9% increase. An identical-store sales increase (excluding fuel) of 1.6% was largely offset by a decline in fuel sales. For the year sales were $36.1 billion in 2013, essentially flat compared to 2012. Identical-store sales increases (excluding fuel) of 1.7% and higher other revenue were offset by lower fuel sales and the disposition of Safeway’s Genuardi’s stores.

"We are pleased with the progress we made in 2013," stated Robert Edwards, Safeway’s president and CEO. "Strategies to grow sales and improve operating profit dollars have begun to produce results. In 2013, we generated our best volume growth since 2006, and we had our best identical-store sales growth in the last five years. At the same time, we continue to pursue strategies to enhance momentum and increase shareholder value. We look forward to continuing progress in 2014."

Safeway posted net earnings from continuing operations of $100 million (35 cents per diluted share) for the fourth quarter of 2013, representing a 41.4% decline as compared to $170.7 million ($0.71 per diluted share) for the fourth quarter of 2012. The fourth quarter of 2013 includes a $57.4 million loss ($0.14 per diluted share) on foreign currency translation, a $30 million loss ($0.08 per diluted share) from the impairment of notes receivable and a $9.7 million gain (net of noncontrolling interest of $3.8 million) ($0.04 per diluted share) from the reduction of contingent consideration related to Blackhawk’s acquisition of Cardpool. 

 

 

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Hertz enters van share partnership with Costco in the U.K.

BY Antoinette Alexander

LONDON —The Hertz Corp. and Costco in the U.K. have teamed up to bring short-term Hertz 24/7 van rental to Costco’s members. 

The self-drive service operates at all 25 Costco warehouses in the U.K. Costco’s members can hire a van from the warehouse car parks to drive their purchased items home immediately.

"We have been growing our global van rental offering through Hertz 24/7 for over five years. Our Hertz 24/7 service enables Costco to provide its members with an attractive and efficient van delivery service. Hertz takes care of providing and maintaining the fleet and handling all customer transactions while Costco’s members can enjoy the convenience of taking their purchases home straightaway, rather than waiting for the goods to be delivered in the future,” stated Michel Taride, group president of Hertz International.

Sue Knowles, Costco’s marketing director, added, "Our agreement with Hertz 24/7 is another example of our dedication to improving member service, ensuring members can transport their purchases conveniently and at a low price. Given Hertz’s 24/7’s customer support network, combined with its solid reputation for reliability and experience of operating a large and strong van fleet across the U.K., I am confident that this agreement will further enhance the Costco member experience."

As well as with Costco, Hertz 24/7 has partnered with IKEA in the U.K. to offer customers access to van hire. Hertz 24/7 self-drive van hire is also available to customers of B&Q in the UK; IKEA, Castorama and the Casino supermarket chain in France; the DIY store Leroy Merlin and a number of IKEA stores in Spain; and Lowes DIY store in the United States.

 

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