Wal-Mart announced at its annual shareholders meeting last Friday that it will reduce by one-third its construction of new stores in the US this year, a move that will cut its capital expenditures in 2007 by $1.5 million to $15.5 billion.
The move was seen by analysts as an effort to assuage investors, who have been after the company to cut costs, improve same-store sales by cutting back on the cannibalization of existing stores by new units, and boost shareholder returns. At least in the short term, it seemed to be successful – after the news broke on Friday, the company's share price increased almost four percent.
The Wall Street Journal reports that "this year, Wal-Mart will open 190 to 200 U.S. supercenters…down more than a third from the 265 to 270 openings projected earlier this year. Through 2010, Wal-Mart will build about 170 U.S. supercenters a year." International expansion plans, and the growth of its Sam's Club chain, will not be affected by the cutbacks.
Predictably, Paul Blank, campaign director for WakeUpWalMart.com, released a statement criticizing the company: "Wal-Mart and Lee Scott are living in a dangerous state of denial. The past year has been a total disaster for Wal-Mart. Not only did the company have its worst annual same store sales growth in 27 years, but Wal-Mart
failed to execute almost all of its stated objectives for the year, including being denied a bank in the face of unprecedented opposition, a fashion disaster, and an inability to expand into new markets and new demographics."
At the same meeting, company chairman Robson Walton delivered what the Journal describes as "a strong defense of Chief Executive H. Lee Scott Jr., whose relationship with a Wal-Mart supplier has triggered accusations of favoritism."
Those favoritism charges – which have been brought again Scott by Julie Roehm, the fired marketing executive who has been accused of unethical personal and professional behavior by Wal-Mart – saw another plot twist over the weekend when the Wal-Mart supplier in question, Irwin Jacobs, sued Roehm and accused her of making false and defamatory statements when she said that Scott got preferential personal discounts on yachts and jewelry from his company.
The move was seen by analysts as an effort to assuage investors, who have been after the company to cut costs, improve same-store sales by cutting back on the cannibalization of existing stores by new units, and boost shareholder returns. At least in the short term, it seemed to be successful – after the news broke on Friday, the company's share price increased almost four percent.
The Wall Street Journal reports that "this year, Wal-Mart will open 190 to 200 U.S. supercenters…down more than a third from the 265 to 270 openings projected earlier this year. Through 2010, Wal-Mart will build about 170 U.S. supercenters a year." International expansion plans, and the growth of its Sam's Club chain, will not be affected by the cutbacks.
Predictably, Paul Blank, campaign director for WakeUpWalMart.com, released a statement criticizing the company: "Wal-Mart and Lee Scott are living in a dangerous state of denial. The past year has been a total disaster for Wal-Mart. Not only did the company have its worst annual same store sales growth in 27 years, but Wal-Mart
failed to execute almost all of its stated objectives for the year, including being denied a bank in the face of unprecedented opposition, a fashion disaster, and an inability to expand into new markets and new demographics."
At the same meeting, company chairman Robson Walton delivered what the Journal describes as "a strong defense of Chief Executive H. Lee Scott Jr., whose relationship with a Wal-Mart supplier has triggered accusations of favoritism."
Those favoritism charges – which have been brought again Scott by Julie Roehm, the fired marketing executive who has been accused of unethical personal and professional behavior by Wal-Mart – saw another plot twist over the weekend when the Wal-Mart supplier in question, Irwin Jacobs, sued Roehm and accused her of making false and defamatory statements when she said that Scott got preferential personal discounts on yachts and jewelry from his company.
- KC's View:
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We think that the cutback in new stores can be seen as Wal-Mart taking one step back before its takes two, three or four steps forward. It gets analysts off its back for a while, and allows management some breathing room to plot out its next steps.
Competitors should not breathe easy, however.
Meanwhile, the rest of us can sit back and enjoy the show as the Julie Roehm saga rolls on. The entertainment value alone will be priceless.
