The wonderful world of Wal-Mart
Playthings Staff -- Gifts & Dec, June 24, 2002
In four decades, Wal-Mart has grown to the point that even hyperbole can no longer provide a fair description of its scope. It has established itself not only as the largest company in the world, it has become the largest seller in the country of nearly every product category it carries — including home textiles, which amounted to more than an estimated $2.4 billion last year.
Along the way, it has also been fundamentally responsible for altering the nature of the retail business, setting benchmark standards for suppliers and competitors alike. As a recent study by the McKinsey Global Institute noted: "Today's economic reality is that high-tech decisions made in Arkansas play a larger role in boosting America's productivity than decisions made in Silicon Valley or Seattle."
And in merchandising terms, a Wal-Mart move — whether to ban a certain recording artist's latest release unless racy lyrics are altered or whether to move into 250-count sheets — ripples across the retail landscape at the speed of light.
Wal-Mart's compulsion is to prove that despite its size (nearly $218 billion in sales in 2001), it remains a growth company — and a robust growth company at that. The company's standard: producing a 15 percent total annual return for shareholders.
In the United States, supercenters provide the key sales growth vehicle. Now with roughly 1,080 units producing nearly $80 billion in annual sales, Wal-Mart plans to roll out 180 to 184 supercenters this year, growth that is far from over. With supercenter units generating $75 million to $100 million in sales, the annual addition alone will boost revenues by some $500 million.
And the format hasn't even hit the biggest prize yet: California.
But it is headed that way. Over the next four to six years, Wal-Mart plans to open up to 40 supercenters in the state, which is currently home to 125 Wal-Mart discount stores and 29 Sam's Clubs. The California supercenters alone will add some $3 billion in sales to the kitty.
The supercenter expansion serves as a prime example of Wal-Mart's long-term investment and expansion strategy. Wal-Mart first tested a grocery/combo format with the openings of a hypermarket in Texas in 1986 but did not begin rolling out the supercenter format in earnest until the mid-1990s. Even so, the revenue contribution from supercenters did not surpass that of traditional discount stores until last year. Moreover, Wal-Mart still has some 1,600 discount stores in operation, many of which will be targeted for supercenter conversion over the next decade.
Clawing away market share from the grocery industry will continue to propel the company's domestic growth for the immediate term. In the meantime, Wal-Mart is already preparing its next target for market share eradication: the neighborhood drugstore. Its Neighborhood Market format, launched three years ago and now a mere 33 units strong, combines grocery with health & beauty care and a drive-through pharmacy in a 40,000-square-foot box that settles easily onto a pad smaller than a strip-center operation requires. Analysts have suggested Wal-Mart could supplement its store base with up to twice as many Neighborhood Markets as its current portfolio of 2,700 discount and superstores. With the format churning $12 million to $15 million per box, Wal-Mart is looking at a vehicle that can deliver its next $100 billion-dollar revenue stream and sustain expansion through 2020.
International growth is another long-term project, and like supercenters, its roots go back to the '80s, when Wal-Mart experimented with a joint venture that ultimately collapsed. Now a division that encompasses 928 supercenters, grocery stores, warehouse clubs and restaurants on four continents, the $35.5 billion operation furnishes Wal-Mart with vast potential for additional growth. Such is the perceived scope of the company's ambition abroad, that hardly a month goes by without a newspaper somewhere in the world publishing a report that Wal-Mart is in negotiations with a major retailer for a new joint venture partnership.
The international foray has also greatly boosted Wal-Mart's global sourcing capacity, an initiative launched in 1977, when the retailer began importing directly to fatten margins on selected merchandise. Last year, the company greatly expanded its sourcing capacity, establishing its own sourcing operation in China.
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