Walmart U.S. CEO Greg Foran said he and his management team have spent two years “fixing stores.” By that, he means looking at every process within a store operation and then simplifying the process from how to pick fresh produce for online shoppers to faster checkout options.
But with stores in much better shape, Foran said the focus is shifting toward “leading in retail” and that will mean increased technology testing, improvements in merchandising, better values for customers and overall ease of shopping. Fixing the U.S. business was crucial for Wal-Mart given that it represents 62% of the company’s total sales revenue. Last year, Walmart U.S. had total sales of $298.4 billion, slightly less than two-thirds of the company’s overall $485.14 billion net sales revenue.
Foran said growing sales is a priority but so is reducing overhead costs. He said little changes can add up quickly given the retailer’s large scale. Wal-Mart saved around $20 million by making a simple change to plastic shopping bags and garnered another $7 million by shortening the length of grocery receipts and it’s always looking for leaner ways to operate.
Foran told Wall Street analysts Tuesday (Oct. 10) the retailer is negotiating better merchandise costs from its suppliers and it continues to lower prices, but more progress must be made in leveraging expenses and accelerating comp-store sales. He said the retailer must get more out its 4,741 stores because there will be fewer than 25 new stores added next year and top line sales are forecast to grow at 3%.
While Walmart U.S. same-store sales comp have been on a positive trend for more than 10 consecutive quarters, the 1.6% comp growth in the first half of this year is roughly half of the 3.1% total sales gains in the operating segment.
Walmart U.S. eCommerce sales are expected to grow 40% next year and with 1,000 additional new grocery pickup locations more of the grocery business is projected to move online next year. While this could ding comp-store sales, Foran said there is also a halo effect on the stores offering online pickup. He said stores that offer online pickup run more efficiently and do a better job managing inventory. Wal-Mart management also has said customers who shop online and in stores spend twice as much as those who just shop one of the ways and that’s a sweet spot for the retail giant.
Foran said it’s not enough to just run great stores, but doing so gives the retailer a stronger foundation for the future. He said Walmart U.S. must also continue to deliver value in the form of low prices and good quality and be great merchants. The company using more private brands while adding some popular aspirational brands such as Yankee Candle and Cuisinart to its store inventory in recent months, Foran said.
He said technology deployed in store operations is also expected to have a positive impact on overall store performances. An example he provided was the company’s Value Producing Item (VPI) competition between store employees. A VPI can be any item an employee wants to promote with in-store displays. The items receive prominent placement in stores and are highlighted for customers. Foran said last year there were 148,000 VPI submissions, but since the process has been made easier with a VPI app, more than 150,000 submissions have been received in the past 45 days.
Getting employees excited about VPI is one way Foran said stores can improve overall sales and being great merchants is also helping the retailer build trust with its customer base.
“Offering value is the essence of who we are,” Foran said.
He also talked about the importance for a company Wal-Mart’s size to build trust with its vast employee base and said that is happening thanks to the training academies now open in 187 locations, soon to be 200 by year-end. In many cases, he said training academies are placed in the backrooms of stores which have been cleaned up during the past three years through the “Fast, Clean & Friendly” protocol he instituted when he took the helm in August 2014. Foran said the academies are a great tool for the retailer as it shifts labor around the store. The academies can expedite training in the retailer’s “one-best way” protocol for jobs that didn’t exist two years ago.
He said the retailer now has 17,000 self-checkout hosts and roughly 18,000 personal shoppers who pick items for online grocery and neither of these positions existed two years ago.
Foran said management meets each week to look at the business and when it comes to rolling out new services or options for customers the retailer is careful to ensure it won’t be too disruptive to regular store operations. Some changes to bridge the online and in-store capabilities could allow shoppers to customize a cake using their Walmart app, or schedule an appointment for tire and lube work.
Last week, Wal-Mart announced a faster way for customers to return their online orders in stores. While Wal-Mart has always allowed Walmart.com items to be returned in stores, they can speed up the process by starting online before they ever leave home. Once they get to the store they can skip to the express lane, show their confirmation, hand over the product and be on their way. Wal-Mart said the process in the past could take five to 10 minutes but using the new return express option that time has been reduced to under 1 minute, saving the customer time.
Ben Bienvenue, a retail analyst with Little Rock-based Stephens Inc., said he is encouraged by the initiatives because they drive online traffic into the stores, which represents an opportunity to capture more sales with customers. He also cited the retailer’s efforts to improving its merchandising and adding brands that will attract new customers as positive moves for the U.S. business.
“The company recognizes that fresh is an important traffic driver and is committed to winning in this crucial category. Walmart recognizes that its the future is likely more digital and is investing globally to increase omnichannel offerings in a way that leverages its unique asset base,” Bienvenue said.
Stephens analysts are bullish on Wal-Mart Stores, rating the company overweight, meaning it should outperform the overall market in the next year. The one-year target price given by Stephens is $91. (Stephens conducts investment banking business with Wal-Mart Stores and is compensated accordingly.)
Wal-Mart shares (NYSE: WMT) closed Wednesday at $85.73, up $1.60. The stock set another 52-week high intraday at $86.29, the low for the past year has been $65.28.