Wal-Mart Exec Predicts Improved Results

Sticking with its low price strategy, Walmart U.S. CEO Bill Simon said the back half of this fiscal year will deliver improved financial results, led by rapid growth and strong comparable sales from the Neighborhood Market formats and several other initiatives on tap at the nation’s largest retailer.

Simon spoke to investors Wednesday at the Goldman Sachs retail conference in New York.

“We will continue to deliver low prices on the things people want. We did so on adult beverage alcohol products and have since gained marketshare in this category,” Simon said in his opening remarks. “We know being aggressive on price is key to driving store traffic.”

He said the rapid scale up in the Neighborhood Market format to 500 stores in the next 18 months is key to the company’s growth strategy as these stores are delivering mid single-digit positive same-store sales in a category that returned a 60% net sales growth in the past two years. The Neighborhood Markets are also key in the company’s ability to accelerate its online sales with the site-to-store pick-up option which is gaining traction, according to Simon.

Simon also said the Neighborhood Market and smaller format stores are stocked more heavily with general merchandise than in years past. He said the company’s Presidential Towers store in Chicago at any time could contain up to 30% of general merchandise from the site-to-store option.

“Our customers are using this option, many times ordering online then paying with a credit card when they pick it up in the store,” Simon added.

Wal-Mart also is using more stores to fill online orders, after piloting that program in recent months. He said the number of stores filling online orders are in the double digits and growing. The locker tests have also been well received as Simon told investors it’s been interesting to see the users’ inclinations to repeat purchases.

When asked about price leadership, he said Wal-Mart gets better separation from competitors when prices are moving up or down related to inflation or deflation. Simon said when prices are moving higher Wal-Mart can hold prices down longer because of the scale on which it procures product. Likewise, he said when prices are moving down, Wal-Mart can drop the prices ahead of other retailers because it moves more product faster.

He said Wal-Mart will lower the price if that added value pushes more sales, otherwise it doesn’t make sense.

PRODUCE GAINS
Simon said Wal-Mart will continue to capitalize on the success it is seeing in its fresh produce category spurred on by its “fresh audit” initiative that has improved the quality while also produced a 10% price gap between major competitors leading to solid marketshare gains in the past two quarters.

Carol Spieckerman, CEO of New Market Builders in Bentonville, has said the “fresh” category is an important element from big box retailers to convenient stores. She said companies that can figure out how to deliver the freshest product for the best prices in convenient formats are bound to capture marketshare. Spieckerman said “fresh” is also an important traffic driver, but the one thing a retailer can’t afford to do is to disappoint a shopper who goes into a store looking for fresh items that are not there.

Wal-Mart’s “fresh audit” program uses a third party auditor who routinely checks on every store selling fresh produce. Simon said the auditor checks for quality and other specifications and scores the products accordingly. He said if an auditor is checking tomatoes and three of them fail to meet the guidelines, that whole product group receives a failing score. If three different products fail, the entire store has failed.

“We are teaching the test and we expect them to pass. Our stores have a mid-90% pass rate,” Simon said, adding that the pass rate is 20% higher than the competition.

The results have meant improved comp sales of roughly 5.5% to 6% over the past two quarters. Comp sales in the fresh produce category rose from 1% to 6% in the year-over-year period, according to Wal-Mart.

HOME & APPAREL
Simon said the story of the year could be improving momentum seen in the retailer’s home and apparel divisions.

“We have always had strong basics and we continue to add exciting national brands to our assortment mix. In the third quarter you will see Calphalon and Russell Athletics as two new brands. Russell athletic wear, new to the stores, is already selling very well,” he said.

The company also is offering Sealy mattress sets in a select number of stores. The product has been sold at Sam’s Club and online, but twin, full and queen mattress sets are now sold inside various supercenter locations.

When asked about its competitors, Simon praised Costco on its merchandising efforts, saying the retailer had long recognized the value of having veteran merchants. He said retaining retail experience is why Wal-Mart recently restructured the buyers’ salary and bonus incentives.

“It takes some time, particularly in the home and apparel categories, to understand those markets fully,” Simon said.

The buyers need to merchandise through several seasons, year over year to spot the trends, he added.