Wal-Mart sees 'tough' economy, speeds small-store strategy

Michael Duke, Wal-Mart CEO
Joshua Roberts | Bloomberg | Getty Images

Wal-Mart Stores sees the economy as "tough" and "unpredictable" around the world, and in the United States the government shutdown is on the minds of its customers, Chief Executive Officer Mike Duke said at the company's meeting with investors and analysts in Arkansas on Tuesday

"When people hear of a stalled economy and government shutdown, it's not helping" consumer confidence, said Bill Simon, Walmart U.S. CEO. "We are battling through that. [But] I feel very good about where we are. We are dealing effectively with the short-term environment."

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Wal-Mart, the world's largest retailer, has already felt pressure from the economy. Same-store sales at Walmart U.S., its largest business, unexpectedly fell 0.3 percent in the second quarter.

Simon said Walmart U.S. feels pretty good about its profit but is not satisfied "at all" with its sales.

2 Walmart stores ransacked

Simon announced plans to open more small stores and link them to its supercenters, which will serve as mini-warehouses for their smaller cousins.

The moves aim to cut costs and respond to shoppers' demands for convenience as Wal- Mart faces increasing pressure from expanding competition. That includes online retailers like as well as dollar stores, which have been rapidly adding locations and winning customers with low prices and easy access.

Wal-Mart expects to roll out the new distribution strategy in the first of three markets in March, though it declined to say where. It is testing some of the aspects of the plan in areas like Gentry, Ark., where it operates a Walmart Express store, which is less than one-tenth the size of a typical supercenter.

The retailer operates more than 4,000 stores in the U.S., most of them supercenters. But it's seeing its smaller stores like Neighborhood Markets, which number about 300, and Walmart Express, which operates 20 locations, as vehicles for growth.

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By fiscal 2017, Wal-Mart plans to add 400 more Neighborhood Markets. In comparison, it plans to add another 300 supercenters by then.

That would mark the first time Wal-Mart is expanding smaller stores at a faster pace than its supercenters. Neighborhood Markets, which offer such items as fresh produce, meat, household supplies and beauty products, average about 38,000 square feet, while Walmart supercenters, which carry food and general merchandise like clothing and home furnishings, average about 182,000 square feet.

Overseas, Wal-Mart said that it's closing some unprofitable stores in China and Brazil, as it seeks to improve business in those markets.

In the short term, Wal-Mart, based in Bentonville, Ark., is trying to rev up its namesake stores in the U.S., which have seen weaking business because of an uncertain economy.

The company said that heading into the holiday shopping season, it's trying to make sure the right inventory is in stock and is being more aggressive about discounting across the store.

U.S. Walmart stores, which account for 59 percent of the company's total sales, reported a 0.3 percent decline in revenue at stores open at least a year in the second quarter. That marked the second straight quarter of declines in a key revenue figure after six consecutive quarters of increases.

Revenue at stores open at least a year is considered an important measure of a retailer's performance because it removes the effect of adding stores.

Adding in Sam's Club and international stores, revenue at stores open at least a year was flat compared with a year ago. It rose 1.7 percent at Sam's Club.

—Reuters with