Wal-Mart to slow growth of supercenters

Wal-Mart employees from China wave flags before the company's annual shareholders meeting, held in a basketball arena. More than 15,000 employees and other shareholders attended the event.
Wal-Mart employees from China wave flags before the company's annual shareholders meeting, held in a basketball arena. More than 15,000 employees and other shareholders attended the event.April L. Brown / AP

Wal-Mart will scale back the number of planned U.S. superstore openings this year by more than 25 percent in an effort to focus more on existing stores, company executives said Friday.

The decision comes as Wal-Mart is facing sagging sales growth and difficulties in expanding its sales of apparel and home decor items. Wal-Mart said the move would improve service and offerings at existing stores and reduce cannibalization of existing stores.

Wal-Mart will open 190 to 200 new supercenters in the current 2008 fiscal year, rather than the 265 to 270 it originally had announced. The company plans to open about 170 supercenters annually in future years.

The announcement was made at the company's annual shareholders meeting, where Chief Executive Officer Lee Scott called the slowdown a way to make existing stores more productive and profitable and grow overall sales.

The decision, which will cut capital spending to $15.5 billion this year from a previously announced $17 billion, helped send the company's shares higher in New York Stock Exchange trading. The company also announced a $15 billion stock repurchase plan.

"We're committed to providing a better return, not only return on investment but return to our shareholders," said Chief Financial Officer Tom Schoewe.

Wal-Mart executives, accustomed to being on the defensive, used the annual meeting as a platform to stake out a more offensive position, highlighting things they think are going well — and countering critics in those areas where they have faced the most pressure.

"The attacks from our opponents are just not working, and they are not going to work," Scott said at the meeting, a four-hour extravaganza featuring performances by comedian Sinbad, singer Jennifer Lopez and "American Idol" winner Jordin Sparks.

Meeting with journalists ahead of the annual meeting, company executives took an aggressive stance against accusations that Wal-Mart, the world's largest retailer, does not provide good enough health care and benefits.

Linda Dillman, an executive vice president in charge of benefits and other functions, touted a recently introduced program that offers relatively inexpensive health insurance for employees. She also presented internal data showing that more than half of employees who signed up for health insurance through Wal-Mart had previously been uninsured, and 7.8 percent had come off Medicaid.

“You’ve seen us make some changes in the last few years so we can broaden our availability,” she said.

Wal-Mart foes including WakeUpWalMart.com and Wal-Mart Watch have argued that the company does too little to make health care affordable to employees and forces them to wait too long to get insurance. Critics also say the new, cheaper program is not a solution because it requires employees to shell out for high deductibles that are hard to afford on Wal-Mart wages.

Company executives also argued that Wal-Mart is seeking solutions to health care issues on a larger scale, beyond just its own employees. They pointed to plans to open more in-store health clinics as a way to provide less expensive basic health care to people who might otherwise go to emergency rooms and deal with much bigger bills. And they said the company's $4 generic prescription drug program, which many other retailers have emulated, makes some basic medications more affordable to low-income people.

But executives also conceded they have good business reasons for wanting to put clinics in stores. Bill Simon, Wal-Mart’s chief operating officer, said the clinics are as profitable, if not more so, than the space they are replacing in the company’s big discount stores.

Executives also highlighted Wal-Mart's efforts to conserve energy and resources, which have also led to cost savings, and noted their commitment to international markets including China and Mexico. Wan Ling Martello, Wal-Mart’s senior vice president for international finance, also said the company was committed to staying in the Japanese market despite difficulties.

Faced with increased saturation in the United States, Wal-Mart is looking to international expansion to help fuel future growth. But amid some successes, the company also has stumbled in markets such as Germany, which it was forced to abandon.

Wal-Mart’s offensive push to counter criticism may not be enough to quell concerns from shareholders gathering at a local stadium early Friday for the shareholders meeting.

Executives have conceded Wal-Mart is struggling to appeal to shoppers in its home decor and clothing departments, especially as more upscale items have been introduced in an effort to draw in more affluent shoppers. Meanwhile the company's traditional base of lower-income shoppers are being hamstrung by rising gas prices.

Sales at stores open at least a year, a key measure for any retailer, fell 3.5 percent during the April period, following months of relatively sluggish same-store sales figures. Wal-Mart shares also have languished over the past few years.

Meanwhile, Wal-Mart also is fighting a public relations battle against groups that have attacked the company over its employee pay, benefits and other issues. On Thursday, the union-backed WakeUpWalMart.com launched a campaign aimed at Southerners and conservatives, focusing on Wal-Mart’s increased use of goods made overseas.

The retailer also is embroiled in multiple battles across the country with activists who do not want a Wal-Mart in their back yard.

Another major distraction is an ugly legal battle with a former marketing executive, Julie Roehm, who was fired for allegedly violating company policies. Roehm recently alleged in a court filing that Scott also violated such policies by, among other things, accepting preferential prices on yachts.

Wal-Mart denies the allegations.

"Mr. Scott did not and has not committed an ethical violations," corporate Secretary Tom Hyde told reporters after the annual meeting. "In my opinion, Lee undernegotiates, overpays and leaves too much on the table when he negotiates, and the reason he does that is because he knows he lives in a fish bowl."