Wal-Mart Looks to Retain Cost-Conscious Shoppers

MARK HAMSTRA

BENTONVILLE, Ark. — Wal-Mart Stores here said the improvements it is making in its stores will help it to retain the new business it is attracting because of the pressure on shoppers.

“Some people that didn't shop at Wal-Mart are finding that shopping at Wal-Mart is something that will help them live through this difficult economic time,” said Eduardo Castro-Wright, president and chief executive officer of Wal-Mart's U.S. division, told analysts following the company's annual shareholder meeting this month. “And I'm sure … that when the economy improves they will see that going back to other retailers probably is not a good idea. We believe that we will be able to retain those customers.”

He said the company has observed that stores serving areas with higher-income households — those with incomes of $65,000 per year or more — have seen the biggest increase in foot traffic during the recent economic slowdown.

“The traffic in that group [of stores] has grown in the past six months much faster than in the rest of the chain,” he said. “So the only reasonable assumption we can make is that they are customers that used to shop elsewhere that have household incomes of $65,000 or more that actually have chosen to try us out. And, based on the fact that we have had now a few quarters of improved performance, as they try us out they are finding that shopping at Wal-Mart is not only a rewarding experience for the pocket, but it is a rewarding experience overall.”

Earlier in the week, the company reported a surge in sales for the month of May, which it attributed in part to spending from the economic stimulus checks consumers have been receiving. Same-store sales for the month were up 4.4% (3.9% excluding fuel).

The company, already considered a model of logistical efficiency, also told analysts after the annual meeting that it was seeking to drive even more costs out of its distribution infrastructure by focusing on improving the gas mileage of its truck fleet, among other initiatives.

“Other areas would include freight consolidation points — does it make sense to move freight all the way to a distribution center?” said Johnnie Dobbs, executive vice president, logistics and supply chain. “So we're working collaboratively with our suppliers to look at different ship points and align our ship points with their manufacturing points.”

It is also taking a new approach to measuring cube optimization — the science of maximizing the use of trailer space to reduce the number of deliveries — that focuses on packaging efficiency.

“We're looking at a metric I don't know that anybody else in the industry's looking at — selling units per cubic foot,” Dobbs said. “So you may have a trailer or transportation mode cubed out, but how many selling units do you have there?”

In a media tour the day before the annual meeting, the company unveiled a streamlined apparel selection focused on basics and a revamped electronics department, which the company said was a model for its plans to improve the in-store experience throughout the store, according to reports. Among the company's in-store initiatives: more signage, lower fixtures and more room in the aisles.

The company also unveiled plans for a new concept for its Sam's Club division dubbed “Sam's Club Business Center.” The first store is planned for Houston next month, according to reports.

The reports said the scaled-down club would focus on supplies for small businesses, such as offices, convenience stores and restaurants.

“If we like the financials, then the company will convert Sam's Clubs to the new concept in certain locations that cater heavily to small business owners,” Doug McMillon, CEO of Sam's Club, was quoted as saying in an Associated Press story.

At its raucous shareholder meeting — hosted in nearby Fayetteville, Ark., by Queen Latifah and featuring a big-name roster of musical performers — Wal-Mart touted its international growth potential and said it was “exploring” development possibilities in Russia.

The company also projected that capital expenditures for the current fiscal year would be at the low end of previous projections of $13.5 billion to $15.2 billion.