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WAL-MART ADJUSTS PROJECTED OPENINGS FOR SUPERCENTERS

BENTONVILLE, Ark. -- Wal-Mart Stores here said in a recent filing with the Securities and Exchange Commission that it will open even more supercenters this year than it previously said it would, while it will cut back on its planned Neighborhood Market openings.The company said it planned to open 230 to 240 supercenters in fiscal 2005, which ends next January, compared with the previous estimate of

BENTONVILLE, Ark. -- Wal-Mart Stores here said in a recent filing with the Securities and Exchange Commission that it will open even more supercenters this year than it previously said it would, while it will cut back on its planned Neighborhood Market openings.

The company said it planned to open 230 to 240 supercenters in fiscal 2005, which ends next January, compared with the previous estimate of 220 to 230 supercenter openings that the company stated last fall. About 150 of those new supercenters will be conversions or relocations of existing discount stores, the company said.

Wal-Mart said in the SEC filing that it plans to open 20 to 25 new Neighborhood Markets this year, down from previous projections of 25 to 30 new outlets for the concept, which combines a traditional drug store and a supermarket in a 43,000-square-foot format, on the average. Last year, Wal-Mart opened 13 Neighborhood Markets, for a total of 64 in operation at the end of fiscal 2004.

"When it all rolls up, it's still the same amount of square footage," Gus Whitcomb, a Wal-Mart spokesman, told SN last week. "Basically, we try to put the right store in the right market, and sometimes as we go through and do a broader analysis, we find that a supercenter is the right store to have in that particular neighborhood. In other instances, it's the Neighborhood Market. We look at those and evaluate them as we go through the year."

The company plans a total of $12 billion in capital expenditures in fiscal 2005, which also includes five new distribution centers and international expansion. Last week the company said it has canceled the planned construction of a 1.2-million square-foot distribution center in Wallkill, N.Y., citing increased efficiency at existing warehouses. Wal-Mart had originally planned to begin construction last year and open later this year.

Wal-Mart has explained its relatively slow rollout of Neighborhood Markets, compared with supercenters, by the fact that it gets better returns on its investments in the larger stores and prefers to focus its resources there for now.

Industry observers see the day coming, however, when the Neighborhood Market format becomes a more significant growth vehicle for the company.

"In terms of using their grocery management staff and skills, they are going to focus on their supercenters until that expansion possibility peters out," said industry consultant David Rogers, president, DRS Marketing, Deerfield, Ill. "I think the Neighborhood Market opportunity is basically being fine-tuned so it's ready to roll out when the supercenters are done, so to speak. This is the second string to their bow, and it will follow the supercenter expansion program."

Rogers predicted that it could be five years or more before Wal-Mart rolls out the Neighborhood Market banner more aggressively. The company, which ended last year with 1,471 supercenters, could easily reach a total of 3,000 outlets in the United States before it turns its attention toward filling in the country with Neighborhood Markets.

"At some point," he said, "they will see increasing difficulties in terms of the availability of markets to enter, the availability of real estate and the degree of opposition to the traffic generation, and the Neighborhood Market is a marvelous in-fill vehicle to go into the markets where they have supercenters, but into the more urban portions, and there's going to be less opposition to them on traffic and other grounds."

In recent weeks, however, residents of one Denver neighborhood have begun objecting to Wal-Mart's planned construction of a Neighborhood Market there. The site would be the first Colorado location for the format.

One of the major obstacles to the more aggressive rollout of the Neighborhood Markets, Rogers said, is the company's ability to staff the locations.

"Despite their size, they have finite resources in terms of the quality people they need to run their grocery operations," he said. "They're going to put those people into the supercenters because they're doing $800,000 a week, while the Neighborhood Market does $375,000. I think in five years, they'll have trained a much larger cadre of grocery management people in the supercenters, and some of those people will need to be promoted out to have their own store, and their own store will be a Neighborhood Market."

In the SEC filing, Wal-Mart also decreased the number of new Sam's Clubs the company plans to open in fiscal 2005, to 30 to 35 new stores (including 20 relocations or expansions), down from the 35 to 40 new Sam's Clubs that the company previously projected. The number of planned new Sam's Clubs still represents an increase over last year's net increase of 13 units, reflecting the improved performance of that banner in the last year.

"I don't think [Sam's] is a prime vehicle for them," Rogers said. "I think they're working hard on it, but I don't think the club market per se can be expanded as fast as the supercenters, so I think they will carry on putting their money in the supercenters."

FOOD DRIVES WAL-MART'S GROWTH

NEW YORK -- An explanation of Wal-Mart's rise from retail giant to global juggernaut over the last several years can be summed up in one word: food.

A recent report by Goldman Sachs analyst George Strachan examining segment results from Wal-Mart's 10-K filings with the Securities and Exchange Commission indicated that grocery goods have been "the principal driver" of sales at the retail giant. In the report, Strachan examined annual results from 2003, 2002 and 1988, using rounded numbers and a five-year basis to present a broad view of how grocery goods have risen to the top.

According to the report, grocery sales, including tobacco and candy sales, have experienced a compound annual growth rate of 12.8% since 1998.

In 2003, groceries led all categories with estimated sales, increasing 20% to $45.3 billion from $37.7 billion the previous year. Comparatively, grocery sales came in at $15.3 billion in 1998 and was the third-largest category.

Not surprisingly, groceries accounted for the largest percentage of total sales in 2003, coming in at 26% of total sales compared with 24% the previous year. In 1998, groceries accounted for 16% of total sales.

With management focused on expanding its supercenter concept, Strachan sees groceries continuing to feed growth for many more years. "We continue to regard domestic supercenters as the main driver of Wal-Mart's growth," said Strachan.

While the grocery segment has been enjoying an ever-increasing share of the limelight, other segments have withered. For example, sales of soft goods slid, accounting for 16 percent of total sales in 2003 compared with 18 percent recorded in the previous year, and markedly below the 21% of sales it accounted for in 1998.

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