Wal-Mart Focuses On Smaller Format Stores And Cost Reduction

Wal-Mart (NYSE:WMT), the world’s largest retailer, is focusing at several initiatives in order to stay ahead of its competitors. It has become essential for retailers to persistently innovate and devise new ways to meet the demands of the customers. Wal-Mart, despite being a large retailer, has been successful in driving growth by fighting competition due to its low prices strategy. It recently reported its fourth consecutive quarter of positive comparable sales with a 2.2% increase in the last quarter. In this article, we discuss the key business highlights for Wal-Mart.

We have $77 price estimate for Wal-Mart’s stock, which is at a premium to the market price.

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Focus on small store format

The company is focused on its small format program and has plans to open around 80-100 smaller formats this fiscal year. It opened 24 new neighborhood markets so far this year. These stores, with an average size of 38,000 square feet, have received strong customer response and delivered positive sales and traffic comps.

Wal-Mart is also testing another small format model, known as Wal-Mart Express, which contains 15,000 square feet of space. These stores are also generating impressive comp sales. Wal-Mart plans to have 15 Wal-Mart Express stores by the end of this year. ^[1]

Emphasis on online sales

Wal-Mart, like other brick and mortar retailers, is focusing on driving its online sales. It is focusing on further developing its online channel in order to provide a convenient and user-friendly experience to its customers. It upgraded its checkout process and improved the Click ‘n’ Pull experience. Besides, in the recent quarter, it witnessed a triple-digit increase in daily use of mobile applications for its Sam Club segment compared to the same period previous year. ^[2]

Reducing costs in focus

Wal-Mart is working hard to reduce costs and has taken initiatives in this direction. It is focusing on reducing operating expenses so as to invest more in lower prices and pass on the benefit of reduced costs to the end-customers. In the last quarter, its logistics team reduced cost per case shipped by 5.4% versus the same period last year.

Facing probe on bribery allegations

Wal-Mart is juggling with an ongoing bribery probe related to its operations in Mexico. These allegations surfaced in April this year. The allegations, if found true, could have far deeper implications for the retailer, including a hefty legal bill, a major management shuffle and reassessment of its foreign operations. (See our previous post: Wal-Mart’s Bribery Probe Could Drag On Growth Amid Intense Scrutiny)

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1. See: Wal-Mart to Test Small Store Format, The New York Times [↩]
2. See: Q2 2013, Earnings Transcript [↩]