Wal-Mart to add small U.S. stores

CHICAGO Wed Oct 13, 2010 6:09pm EDT

A Wal-Mart sign is seen in Miami, Florida May 18, 2010. REUTERS/Carlos Barria

A Wal-Mart sign is seen in Miami, Florida May 18, 2010.

Credit: Reuters/Carlos Barria

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CHICAGO (Reuters) -Wal-Mart Stores Inc will increase store building in the United States next year, including adding more smaller stores to try to reach more customers, even as it expects sales at existing stores to improve in coming months.

Most of the stores the company plans to build in the United States will be larger than 60,000 square feet. But Wal-Mart plans for 30 to 40 of its 185-205 new U.S. discount stores to be smaller than that, Bill Simon said at the company's annual meeting with analysts and investors in Rogers, Arkansas.

Both Wal-Mart and rival discounter Target Corp are trying out smaller store formats to get into densely populated urban areas and increase sales. Some of the new Wal-Mart stores will be less than 30,000-square feet and will be targeted at those urban areas and small towns, the company said.

Analysts have been concerned about Wal-Mart spending money on new stores while sales at existing stores have stagnated.

"The fact that a significant number of planned new stores will be medium- or small-sized stores and not the large super centers helps to ease some (but not all) of our concern about accelerating store openings at a time when comp-store sales are soft," Edward Jones analyst Matt Arnold said.

Wal-Mart would not say how many of the smallest stores would be opened in 2012 and the company is also still determining what the stores will look like, Wal-Mart executives said.

The world's biggest retailer expects to keep capital spending in the United States flat in the fiscal year that begins February 1, 2011, at $7.5 billion to $8.0 billion as it shifts spending from remodeling existing units to building new stores, Simon said.

Total capital spending for the company is expected to rise 3.7 percent in fiscal 2012 from an estimated $13.5 billion to $14.5 billion this year as the company increases spending in faster-growing international markets.

The company also expects total sales to rise 4 percent to 6 percent in 2012.

The increased store building comes as Wal-Mart is also trying to lift sales at its existing U.S. stores, which have declined in each of the past five quarters.

CORE CUSTOMERS LEAVE

Simon expects U.S. same-store sales will increase in the fourth quarter.

He said sales growth was the key focus for the U.S. business, echoing a concern analysts have raised as Wal-Mart has lost some market share this year, including to lower-priced dollar stores.

"The biggest take-away I would have for you is that we can grow," he said.

Aside from increased competition from dollar stores, Wal-Mart also shot itself in the foot, first through a poorly executed attempt to cut down on the products in its stores and then a failed attempt to increase traffic with thousands of temporary price "rollbacks."

The company has actually seen more business from customers with household incomes of more than $70,000. But the company has been losing business from its core customers, which Simon defined as having household income of $50,000 to $70,000.

The company has shifted its focus back to offering "everyday low prices," instead of the "rollback" strategy. It has also been returning items to the shelves.

Internationally, the company sees opportunities to expand in several markets around the world, said Doug McMillon, CEO of Wal-Mart's international unit.

In September, Wal-Mart said it was in talks to buy South Africa's Massmart, a $4 billion deal that would give it a big presence in Africa. Wal-Mart has also been looking for a way to get into Russia.

McMillon also said the company can fill in its geographic portfolio in Latin America and also wants to enter new markets in Asia.

"There are other large, high-growth markets that over time we hope to enter," McMillon said about Asia.

He also said the company needs to add scale in Japan and Argentina.

Wal-Mart expects international capital spending to rise to a range of $4 billion to $4.5 billion in fiscal 2012, from $3.5 billion to $4 billion in the current fiscal year.

That will include adding 21 million square feet of space in 2011 and 23 million to 24 million square feet the following year, a company executive said.

Wal-Mart shares closed down 10 cents at $53.82 on the New York Stock Exchange.

(Reporting by Brad Dorfman; editing by Dave Zimmerman, Matthew Lewis and Andre Grenon)

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