A FIRST FOR WAL-MART: SUPERCENTER SALES LEAD

ELLIOT ZWIEBACH

PORTLAND, Ore. -- Sales at Wal-Mart Stores' supercenters will exceed those of Wal-Mart's discount stores for the first time ever this fiscal year, Don Harris, executive vice president, general merchandise, told an industry conference here last week.

Harris told those at Connections 2001, an event sponsored by the Food Industry Leadership Center at Portland State University, that supercenters accounted for $60.662 billion in sales last year, or 49% of total sales for the company's Division 1 stores -- a division composed of discount, supercenter and Neighborhood Market stores -- compared to $62.2 billion for the discount stores. The division, therefore, last fiscal year produced more than $122.9 billion in sales. The division excludes some substantial business units, such as Sam's Clubs. By way of further comparison to Wal-Mart's revenue production from supercenters, Kroger Co., the largest conventional supermarket operation in the nation, had a top line of $49 billion at the conclusion of its most recent fiscal year.

Wal-Mart's total sales volume was $191.3 billion last year, and Harris said the company expects sales to exceed $200 billion this year. Over the past four years sales growth has averaged $21 billion a year, he said. Wal-Mart's fiscal year concludes Jan. 31. And, he predicted, sales generated by supercenters will jump to the top slot among Division 1 stores: "This [fiscal] year, the supercenter division will surpass the discount stores for the first time and represent more sales to the company than Division 1 Wal-Mart [discount] stores."

Wal-Mart had 1,060 supercenters at the end of October and 1,637 discount stores. With just 27 Neighborhood Markets, that format accounts for only a small portion of total sales, Harris pointed out.

He said Wal-Mart contemplates opening 180 supercenters next year, about the same number it will open by the end of this fiscal year, and that Wal-Mart intends to pursue aggressive sales growth in food categories.

"Food is one of our absolute growth strategies going forward," he said. "It's a $450 billion business, and we have only a very small percentage of that in the world."

When Wal-Mart began selling food in the late 1980s, "we did not do well, and we're still not the best today but we're getting better. And with our low-cost distribution facilities delivering food seven days a week, we will get better and lead the industry."

He also said Wal-Mart has expanded the food offerings at 200 discount stores, "and those stores are doing pretty well."

Of the 180 new supercenters Wal-Mart will open this year, "a very high percentage are exceeding our sales forecasts because of customer response."

According to Harris, Sam's Clubs is in a growth mode after several years of stagnating, "and we're proud that for five consecutive quarters, Sam's has had greater same-store sales increases than Costco [Wholesale]."

He also said Wal-Mart sees "sensational opportunities" to grow its international division, which operates 1,162 stores in eight countries and Puerto Rico.

He said Asda in the United Kingdom is growing its market share; Wal-Mart stores in Mexico are getting stronger; Canada is "very financially healthy"; and Germany is getting better, "although it will still lose money."

He also said Wal-Mart is doing well despite a tightening economy. "Same-store sales in August were up 6.5%, and as people migrate to faith and family in the wake of Sept. 11, we think they will depend on Wal-Mart to satisfy their needs. And if they can trust us in this economy, then we should do well long term."

In response to a question about food safety, Harris said Wal-Mart's commitment to prepackaged meat is part of an effort to ensure safety. "The meat is cut and sealed at the factory instead of the stores, though it's merchandised in the stores. We developed the [prepackaged program] because we believe it's the right thing to do in terms of product quality, consistency and safety."

He also said that Retail Link, Wal-Mart's Internet-based proprietary system that enables suppliers to pull up sales and stock information, is a great competitive advantage since it allows vendors to manage their own business.

"It's the suppliers, not the retailers, who are experts in the industry, so it's right for them to be able to monitor their business."

During his presentation, Harris listed factors that he said ensure Wal-Mart's ongoing success, including the following:

A focus on customers: When customers rejected Wal-Mart's first experiment in supermarketing -- hypermarkets -- in the late 1980s, it was because they were "too big, too intimidating and carried too much inventory." In response, the company tinkered with the format and developed the supercenter. "That's a model customers like.

"Sam Walton raised us to understand that the customer is the boss, and Wal-Mart buyers are agents for the customer. That mentality is different than it is for other companies because our buyers think how little can they charge rather than how much the market can bear."

Everyday low pricing: "Wal-Mart averages 100 million transactions a week in the U.S., and we don't run weekly ads to get people to come in. We do it with EDLP.

"We've built up an unbelievable trust over the years by telling customers we sell for less every day and meaning it. That's the backbone and the cornerstone of the company. Our loyalty program is EDLP."

Respect for associates: "That's the belief that all people in the company are partners." Striving for excellence: "We won't settle for average. Even after a successful sales event, we discuss what we didn't do right to figure out how to correct our errors and to strive for excellence in our results."

Integrity: "Our buyers do not accept any gifts or tips. They're not even allowed to accept a cup of coffee from a vendor."