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WAL-MART PLANS TO OPEN 100 SUPERCENTERS IN '95

BENTONVILLE, Ark. -- All the talk about supercenter growth potential is about to become action by Wal-Mart Stores.The retailer said last week it expects to open 100 supercenters in the fiscal year beginning Feb. 1, 1995, which doubles the 100 supercenters Wal-Mart operated as of Aug. 31.In fiscal 1996, Wal-Mart envisions another wave of as many as 125 new supercenters, according to securities analysts

Amy I. Stickel

September 19, 1994

4 Min Read
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AMY I. STICKEL and MARK TOSH

BENTONVILLE, Ark. -- All the talk about supercenter growth potential is about to become action by Wal-Mart Stores.

The retailer said last week it expects to open 100 supercenters in the fiscal year beginning Feb. 1, 1995, which doubles the 100 supercenters Wal-Mart operated as of Aug. 31.

In fiscal 1996, Wal-Mart envisions another wave of as many as 125 new supercenters, according to securities analysts who attended a presentation at the company's headquarters here last week.

Including openings scheduled for the balance of the current fiscal year, Wal-Mart will have about 136 supercenters operating by Jan. 31, 1995. The 1995-1996 growth plans could give Wal-Mart more than 360 supercenters.

Wal-Mart did not disclose specific market areas for the expansion, but observers said the rollouts should continue in existing operating areas in the Southeast, Southwest and Midwest.

Such aggressive expansion, according to analysts, confirms Wal-Mart's confidence in the supercenter format, which combines a full-line supermarket and a conventional discount store under the same roof. "There's no question that their thrust is going to be toward supercenters," Don Spindle, an analyst with A.G. Edwards, St. Louis, told SN. "The conditions are right now. With more and more families that have two people working, convenience shopping is more important than ever."

The average Wal-Mart supercenter has about 160,000 square feet and annual sales volume of between $55 million and $60 million, about 40% to 45% of which is typical supermarket sales, according to a study by Management Horizons, Columbus, Ohio. (Profits from Wal-Mart supercenters open one year or more have increased at a rate of 39% this year, according to one report.)

About 85 of the 100 new supercenters next year will be relocations or expansions of existing conventional discount stores, Wal-Mart said in its statement.

Overall, the development plans that Wal-Mart announced following the meeting with analysts last

week call for 100 new discount stores and between 50 and 60 outlets in international market areas, including Mexico, Canada, Brazil and Argentina. Wal-Mart has slowed the expansion of its 435-unit Sam's Clubs operation; only 10 are scheduled to open next year.

Wal-Mart began dabbling in grocery retailing in 1991 with the acquisition of the 20-store Phillips Cos. here. A year earlier, it had acquired McLane Co., Temple, Texas, a distributor. Still, its big move into supercenters was not unexpected, since securities analysts had been predicting this type of rollout for some time.

"They've gotten more aggressive over time, so it came as no surprise," said Debra Levin, a securities analyst at Morgan Stanley, New York.

"I wouldn't be surprised if they do north of 100 supercenters next year," said Ed Comeau, a securities analyst at Lehman Bros., New York, who attended the presentation here. "They said [100] was at the high end of expectations, but they've been known to lowball before."

Comeau said he expects Wal-Mart to open a third grocery distribution center as early as the fourth quarter of 1995. Most of the supercenters now operating are supplied out of one of two grocery warehouses operated by Wal-Mart's McLane Co. subsidiary. Those centers are in Clarksville, Ark., and Temple, Texas.

The majority of the existing supercenters are in Texas, Arkansas, Mississippi and Missouri. Spindle of A.G. Edwards said he expects most of the new supercenters also will be built in the Southeast, Southwest and Midwest.

Jonathan Ziegler, an analyst with Salomon Bros., New York, said he expects Wal-Mart to use food distributors such as Supervalu and Nash Finch Co., both of Minneapolis, to supply supercenters outside its own distribution area and to fill in with products it cannot supply itself.

Industry analysts were mixed about the threat that supercenters -- including units operated by Kmart, Troy, Mich.; Fred Meyer Inc., Portland, Ore., and Meijer Inc., Grand Rapids, Mich. -- pose to the conventional supermarket industry. (According to some estimates, supercenters will hold a 5% market share of food store sales by the year 2000.)

"All available information indicates that people do not cross-shop," said Gary Giblen, a securities analyst at PaineWebber, New York. Despite the conventional wisdom, the new supercenters will not pose a threat to well-run supermarket chains, he added.

The only advantage Wal-Mart has over supermarket chains is a nonunion work force, he said, but that advantage is slipping as many unions become more flexible in the face of nonunion competition. Both Giblen and Ziegler said the new supercenters are a greater threat to independent supermarkets than to large chains. Ziegler said independents will need a strong customer base to offset their lack of resources and buying power.

Super Growth

Since first testing the format in the late 1980s, Wal-Mart has picked up the pace of its rollout and may open as many as 225 units in 1995-1996.

Number of Supercenters

1/93 30

1/94 68

1/95* 136

1/96* 236

1/97* 361

*=estimated

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