Walmart To Rely On Small Stores To Prop Dipping Profits

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The superstore retail chain Walmart intends to rely more on the potential of small stores in order to prop its dipping profit. In the company’s fourth quarter report, net income fell by 21 percent to settle at $4.4 billion compared to the same period the previous year. This also affected the full year net income lowering it by 5.7 percent reaching only $16 billion. A 3.2 percent drop in shares from $5.01 per share for fiscal year 2012 to $4.85 per share for fiscal year 2013 was also reported. Also a disappointment for the company was the fourth quarter drop of same store sales in the U.S. by 0.4 percent.

However, not all fronts look bleak for Walmart as its fourth quarter revenue increased by 1.5 percent to hit $129.7 billion and a full year total revenue of $476.3 billion for 2013, which is a 1.6% increase compared to the previous year. The e-commerce revenue, for the same store report for Walmart, showed an increase of 0.4 percent too.

Walmart U.S. Division President and CEO Bill Simon blamed the cold weather for the performance decline of the company. The decline is also affecting the company’s 2014 first quarter indicators, with same store sales going down in the first two weeks of February. However, John Marshall, the United Food and Commercial Workers Senior Capital Markets Economist said the weather should not be blamed for Walmart’s weak performance. Walmart has 4,000 stores spread across the U.S.  Most of these stores are not affected by the storms and when people know a storm is coming, they usually stock up on foods and other supplies which can result in extra spending, Marshall added.

Walmart President and CEO Doug McMillon, who took over the reign of the company last Feb. 1, said Thursday that sales improvement is a top priority and Walmart as a company must be flexible and nimble enough to adjust to the changing demands of its customers. McMillon added that the primary growth driver will come from accelerating its small-store expansion. From the original 120 to 150 smaller-format stores planned to be built for 2014, it will be increased to 270 and 300 stores this year. Simon, in referring to the aggressive stance on the smaller-store format, said that this store type delivers proven and consistent sales growth as well as providing convenience to their customers.

These small stores, called Neighborhood Markets and Walmart Express  are usually one quarter of the size of Walmart Supercenters, and will enable the company to reach customers in the urban areas. This store type will also benefit more customers who do not want the hassle of going into a huge Supercenter midweek to purchase their supplies like meat, fresh produce and household products. The belief in the potential of smaller stores is also boosted by its 5 percent increase in sales last quarter compared to the overall drop of smaller stores sales in the U.S. by 0.4 percent.

An analyst for Edward Jones Investments, Brian Yarbrough observed that this small store format will indeed answer some problems in grocery, but its impact on the company bottom-line will be felt several years later and not immediately.

The other reasons for the decline in their performance as cited by Walmart officials include: sharp cuts in food stamp benefits, higher taxes on peoples’ payrolls reducing disposable income and the pricing advantage Walmart is known for is slowly disappearing.

Walmart’s recent fourth quarter figure report may be a mixed bag of results. However, Walmart intends to correct these by relying more on the potential of small stores in order to prop its dipping profit.

By Roberto I. Belda

Sources:

Reuters
Forbes
ABC News

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