Skip navigation

HOLD OFF ON CELEBRATING WAL-MART'S GROWTH SLOWDOWN

At first blush it seemed last week's business media headlines heralded supermarket nirvana."Wal-Mart Scales Back Expansion," stated the Wall Street Journal. "Wal-Mart to Slow Growth in U.S. Market," blared CNN/Money.com.The news sprung from Wal-Mart's presentation during an investor meeting (see story, Page 1).The company said it will reduce its global square-footage growth next year to 7.5%, including

At first blush it seemed last week's business media headlines heralded supermarket nirvana.

"Wal-Mart Scales Back Expansion," stated the Wall Street Journal. "Wal-Mart to Slow Growth in U.S. Market," blared CNN/Money.com.

The news sprung from Wal-Mart's presentation during an investor meeting (see story, Page 1).

The company said it will reduce its global square-footage growth next year to 7.5%, including about 7% domestically. That compares to 8% expansion on both the global and domestic fronts last year.

The bigger shift will involve a growth reduction in capital expenditures to between 2% and 4%, compared to 15% to 20% this year. That sharp drop will be enabled by factors including a more rigorous analysis of real estate opportunities and increased efficiencies.

Despite the announcement, Wal-Mart still plans to open nearly the same number of U.S. supercenters next year at 265-270 units.

Overall, Wal-Mart plans up to 660 stores of various formats around the world, including as many as 330 in the United States, which is close to this year's figure. That's not exactly a sharp growth decline in the scheme of things.

So is this really a slowdown? Dictionary.com offers the following definition for slowdown: "delay in progress, action, etc." Synonyms include "slackening, falloff, decline."

Those descriptions don't apply here. Last week's Wal-Mart announcement was a recognition that store openings will become more challenging as the company increasingly embraces urban markets, which present more resistance to big-box stores than the retailer's traditional rural base.

Wal-Mart's growth forecast also acknowledges that some supercenters will be modestly scaled down in size. It also pays lip service to investors who have been pushing the giant retailer to improve returns.

The upshot is that Wal-Mart will continue to grow, and will probably become more profitable and - yikes! - even more efficient. That doesn't spell great news for competitors.

Yet there are some possible upsides for supermarkets. Wal-Mart made a point of saying it will curb store growth that cannibalizes its existing base. That signals relief to supermarkets battling in areas already overcrowded with Wal-Mart units.

"You won't see a lot of new Wal-Mart stores in Houston or Oklahoma," said Mark Husson, New York-based managing director for HSBC Securities, London.

Another positive for supermarkets is that many continue to ramp up capital expenditures at a time when Wal-Mart is pulling back on spending. That may eventually set them apart from an aging Wal-Mart supercenter base if the giant retailer fails to make the necessary improvements.

On balance, last week's news shouldn't cause supermarkets to shift game plans. Oddly, the best new move that executives might consider is to buy Wal-Mart stock, which hit a new 52-week high after the company's announcement last Tuesday.

However, my credentials don't include that of stock analyst, so potential investors will need to do their own research.

TAGS: Walmart