Wal-Mart Closings May Help Profitability
One hundred and fifty four stores of the total two hundred and sixty nine are located in the U.S., and most of them are Wal-Mart Express stores or Neighborhood Market stores rather than the SuperCenters that attract much more traffic and are generally more profitable. Wal-Mart Express stores launched in 2011 and are small convenience stores, with a total of 5,000 stores in the Wal-Mart system. 102 of the total closures will be Wal-Mart Express stores. In addition, Wal-Mart is seeing a good deal of competition from online competitors such as Amazon.com, and they are beefing up their online capability to answer that challenge.
The announcement comes three months after Wal-Mart Stores Inc. CEO Doug McMillon told investors that the world's largest retailer would review its fleet of stores with the goal of becoming more nimble in the face of increased competition from all fronts, including from online rival Amazon.com.
“Actively managing our portfolio of assets is essential to maintaining a healthy business,” McMillon said in a statement. “Closing stores is never an easy decision. But it is necessary to keep the company strong and positioned for the future.”
Michael Exstein, an analyst at Credit Suisse, described the moves as “baby steps” in his report published Friday, but he believes they are positive ones. He noted that this is the first mass closing that Wal-Mart has announced in at least two decades.
“It is a sign that Wal-Mart has begun the process of dealing with unproductive locations in a much more tangible and coherent way,” he wrote. “But we continue to believe that Wal-Mart needs a much larger restructuring of its store base in order to narrow its focus as it seeks to improve its sales and returns, especially internationally.”
The corporation indicated that it still plans to open 50 to 60 supercenters, almost one hundred Neighborhood Markets, several Sam's Clubs, and over 200 stores in overseas markets in fiscal year beginning February 1st, 2016. Of course that can change as the international economic situation develops throughout the year.
The announced closures have to date had only a small negative impact on the stock price of Wal-Mart which was down by about 1.8%, but the bigger question is how this will play out if the world economy tanks this year. It is possible that pruning less profitable stores now will help if there is a recession, since shoppers will be looking for a bargain if budgets are tight, and they will see the new stores as a one-stop-shop for the best deals.