Wal-Mart, big guy with big appetite, seems destined to get even bigger

The Outlook

October 12, 1997|By Samantha Kappalman

WAL-MART Stores Inc. announced last week that it would open about 185 stores in the fiscal year that will begin Feb. 1. The move was initiated in hopes of boosting merchandise and food sales for the world's largest retailer.

The openings would include 120 to 125 supercenters, 50 discount stores and about 10 Sam's Club stores. Supercenters combine Wal-Mart's traditional discount stores with grocery stores.

Wal-Mart is developing 50 to 60 stores to open internationally, in Argentina, Brazil, Canada, China, Indonesia, Mexico and Puerto Rico.

As of Sept. 30, the company had 1,922 discount stores, 407 supercenters and 442 Sam's Club stores in the United States.

Could the expansion be too much? Other companies, like Viacom-owned Blockbuster video stores, have gotten into difficulty by over-expanding. Could that happen to Wal-Mart?

Robert F. Buchanan

Retail analyst, NatWest Securities Ltd., New York

You have to think in percentage terms, they are going to add roughly 8 percent to their square footage. They are capable of layering on that square footage, so I don't think that it's going to stretch them beyond their capacity. I think it's an intelligent move. They've been working on refining the supercenter concept since 1986.

I'd like to see them grow internationally even faster. They have 564 stores internationally and are going to add 50 to 60 stores at this stage.

I'd like to see them pick it up a little bit in percentage terms. They are way below critical mass in the Argentina and Brazil markets.

Overall, their growth program is very controlled.

In dollar terms, it can boggle the mind to think that their top line is growing around 12 to 13 percent. In dollars, it's growing in huge numbers.

Sally H. Wallick

Retail analyst, Legg Mason Wood Walker, Baltimore

It's not a concern I have. Over time, they have done a good job of managing their growth.

Much of what they are doing is a continuation of what they've been doing.

A lot of the expansion is the supercenters. It is their newest concept, but it has been around for a while.

The supercenter is really an expanded version of the discount version with food, so it's not like it's a totally different concept for them. The experience is that they have been able to manage it well.

I don't view the expansion as a potential problem area for them.

David H. Nevins

President, Nevins & Associates Marketing and Public Affairs, Hunt Valley

In the business they are in, bigger is often but not always better. There are many differences between the business that Wal-Mart is in and the business Blockbuster is in.

Wal-Mart is in a field that still has a myriad of growth opportunities. Blockbuster has always been fighting new technology. Fortunately, Wal-Mart does not have that problem.

The people who run Wal-Mart are very smart and, generally speaking, with regard to location selection, they have made very good choices.

For example, in Baltimore they have half a dozen stores. It would indicate [that they have made good decisions] if in a metropolitan area of our size, there is room, with the right location, for more stores before they begin to steal business from their own stores.

I am optimistic that they will be relatively successful with this expansion. I think it should serve as a warning sign to other retailers that there is still business out there to be had.

The other retailers, large and small, independent and chain alike, should look at this as a sign that the economy is rolling along nicely, and it might indicate that they should grow and refine their businesses at the same time. People might make the mistake to assume that the expansion of Wal-Mart is bad for everybody else.

I think it's positive for Wal-Mart and for their competitors as well.

Howard Davidowitz

Chairman, Davidowitz & Associates, New York

They have never been in trouble because Wal-Mart is the one that kills everybody else. They've done it for over 25 years because they do it better than anybody else. That's how they became a $107 billion company.

I think it's all good. The supercenter is their present growth vehicle. It is their best bet on the future, and it's going to get even better.

It's a home run. It has been for 20 years and will be for at least the next five years.

The international move to South America is a good idea. Wal-Mart is successful in Canada. They bought a whole bunch of stores in Woolworth. They are moving overseas and have great potential in Brazil, South America and Europe.

Wal-Mart is the only one that has the money for this kind of expansion. Kmart doesn't have any money, and Target is moving slowly. Wal-Mart is going to be the 100-pound gorilla. Food gets you the traffic, and the general merchandise gets you the margin. It's a natural combination.

Pub Date: 10/12/97

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