Wal-Mart's e-commerce investment focused on 'endless aisles'

by Eric Schroeder
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BENTONVILLE, Ark. — Wal-Mart Stores Inc. is stepping up its commitment to e-commerce. The Bentonville-based retailer said it expects capital spending for fiscal year 2016 to range between $11.6 billion and $12.9 billion, including $1.2 billion to $1.5 billion for e-commerce and digital initiatives. The forecast is below the projected capital spending of $12.5 billion to $13 billion for fiscal 2015, due in large part to the change in mix of spending toward more digital growth and a moderation of physical store growth.

“This is an exciting time for Wal-Mart, as there are so many new ways to serve customers,” said Doug McMillon, president and CEO. “Exceeding customer expectations has always been our goal, and we have short- and long-term opportunities to do that even better. We’ll change the mix of our capital spend next year to provide greater access, while continuing to focus on price leadership, service, and a broad assortment. We’ll give customers the choices they want and need in ways that only Wal-Mart can.”

Charles Holley, executive vice president and CFO, said the capital investments in e-commerce will include technology and infrastructure.

“Our business and customers continue to evolve and so will the way we deploy capital,” he said. “We will invest more heavily in e-commerce initiatives, while temporarily moderating our global physical growth, particularly larger stores. We are focused on creating an endless aisle and appealing to our customers’ changing needs.”

Holley said Wal-Mart expects to finish fiscal 2015 with approximately $12.5 billion in e-commerce sales. Looking forward, the company expects an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and growth over the three-year period from fiscal years 2016 through 2018 to average 30 percent to 40 percent.

“The greatest investment of capital and in operating loss for our e-commerce operations will come over the next 18 to 24 months, and then we would expect to see that investment start to moderate in fiscal 2018,” Holley said.

Meanwhile, Wal-Mart projected capital expenditure spending for Wal-Mart US at $6.1 billion to $6.6 billion for fiscal 2016, down from $6.6 billion to $6.8 billion forecast for fiscal 2015. Wal-Mart ramped up spending in fiscal 2015 due to the acceleration of approximately 150 small format openings.

The company indicated that during the testing of its Wal-Mart Express format, feedback showed customers rely on the express format for a variety of reasons, including grocery fill-in trips and last-minute dinner plans. The patterns closely align with how customers shop the Neighborhood Market format, and, as a result, Wal-Mart said it plans to rebrand Wal-Mart Express as Neighborhood Market and will utilize the brand for all small format stores, regardless of square footage.

“We know that our supercenters are an important format for the stock-up trip, but we want to be thoughtful about our investment, ensuring that we align the space to evolving customer needs,” said Greg Foran, president and CEO of Wal-Mart US. “To do this, we will moderate supercenter growth in fiscal 2016. Our investment in Neighborhood Markets will go forward because they continue to show strong results across the box and they provide our customers with convenient access to grocery, pharmacy services, and other quick-trip needs.”

Wal-Mart said it has earmarked fiscal 2016 capital spending in its US operations to new stores, remodels, conversions, relocations, logistics, e-commerce and technology infrastructure. It also reflects the additions of new units that will expand Wal-Mart US’s retail space by approximately 15 million to 16 million net retail square feet. The company expects to open between 60 and 70 supercenters and 200 to 220 Neighborhood Markets.
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