Wal-Mart to add two online fulfillment centers, build fewer supercenters (Updated)

The shift of capital allocation for fiscal 2016 favors e-commerce and convenience formats at Walmart U.S., and for good reason, according to the retailer’s top executives who outlined their future plans during an investor meeting on Wednesday (Oct. 15) in Bentonville.

“Today, a customer has a desire for more items, more assortment, more choice than ever before,” said CEO Doug McMillon. “We have tens of millions of customers visiting us weekly online and through our mobile apps looking for information, product options and then buying merchandise from us in stores and online. We’re known for assortment and we will be in the future.”

He said the methods customers access Wal-Mart is being redefined.

“There is a growing consensus that the future of retail is not just in-store and not just online. The winners in retail will be those that can put them together. Frankly, we think we’re already doing the harder part. Locations matter because convenience matters. We have the stores, the associates, and the expertise in the physical world that others will need to build,” McMillon said.

Wal-Mart said it plans to add two more large-scale online fulfillment centers in the coming year, giving it five e-commerce dedicated distribution facilities in the U.S. Neil Ashe, CEO of Wal-Mart Global e-Commerce, said the new centers will be located in Bethlehem, Penn., and Atlanta, and each will be approximately 1.2 million square feet.

The centers are the latest addition to Wal-Mart’s next-generation fulfillment network which the retailer said is a combination of dedicated e-commerce fulfillment centers with store distribution centers and 4,300 Wal-Mart stores across the U.S., as well as its transportation fleet. 

“By leveraging all of these assets, we can ship orders quickly and cost-effectively to customers, and give them more choices for how they want their orders delivered – pick them up in a store as quickly as the same day, or we can ship to their door,” Ashe said.

Wal-Mart said investments in e-commerce and digital initiatives are expected to range between $1.2 and $1.5 billion in fiscal year 2016, up from approximately $1 billion, estimated for this year. 

Walmart U.S. and Sam’s Club have scaled back their new store openings for the coming year each saying they are being more thoughtful and focusing on quality and e-commerce engagement versus shear quantity.

Spending on traditional brick and mortar stores has been trimmed by nearly $500 million this year to $11.5 billion. Next year Wal-Mart said it plans to spend between $10.4 billion and $11.4 billion, a reduction of another $600 million.

Walmart U.S. CEO Greg Foran said it makes no sense to add hundreds of supercenters when there is so much work to be done refining the operations in the 4.300 stores already open. He said Walmart U.S. will add between 60 and 70 new supercenters in fiscal 2016, down from 120 new locations this year.

“We are thinking about these big boxes and how we can get close to what Neil (Ashe) is doing in the dotcom space,” Foran said. "We know that we can do better with the (supercenters). We're going to lean in there, and we're going to get that right. We're being thoughtful."

Wal-Mart is accelerating the growth of its Neighborhood Market stores to 160 new locations in fiscal 2016, which includes the smaller footprint formerly labeled Express, according to Judith McKenna, Walmart U.S. chief development officer. McKenna said Walmart U.S. has shuttered its tethering initiative announced last year by former CEO Bill Simon. She said the results from the tests in North Carolina proved unsustainable on a cost and logistical sense. However, the company is working to tether some of the back-office costs between stores located near a supercenter.

McKenna said the tethering concept created operational complexities in the backrooms of supercenters – something they did not want to do in the midst of trying to improve store operations as they are working to restore topline growth.

She said the motto is “fail fast, learn and move on,” and that’s what they did with tethering. McKenna said delivering the item directly from the distribution center makes more fiscal sense, which the test proved.