Wal-Mart (NYSE:WMT) operates about 4,000 stores in the U.S. and serves more than 100 million customers every week.  Due to its massive size, the retailer’s growth has been slow over the past couple of years. While Wal-Mart is mainly relying on international expansion for its future growth, it’s also looking at ways to improve its domestic business. Given the limited expansion opportunities available in the U.S., Wal-Mart has shifted its focus on improving store productivity. It’s looking to tap underpenetrated urban markets with its smaller format stores and is investing in its online business.
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Controlled Expansion: Improving Store Productivity And Smaller Stores In Urban Markets
Opening more supercenters and large format stores may be difficult for Wal-Mart due to its massive presence in the U.S. The company is therefore focusing efforts on increasing its store productivity. To achieve this, the retailer has been remodeling its stores and converting its discount stores into supercenters. While Wal-Mart’s discount stores offer a wide assortment of general merchandise and a limited variety of food products, its supercenters offer a full-line supermarket and general merchandise. Wal-Mart closed 514 discount stores between 2007 and 2012 and opened 902 new supercenters.  During this period, the annual revenue per store increased from $67.3 million to $68.5 million. We expect the retailer to continue this trend, which could push the figure to $78 million by the end of our forecast period.
Wal-Mart opened its first Express store in June 2011 and had 11 stores operational at the end of July 2012.  In fiscal 2013, the retailer opened 76 smaller format stores, including Wal-Mart Express and Neighborhood Markets and plans to add 100 more in the current fiscal year.  The company stated that its Express stores are seeing double digit comparable store sales growth despite weakness in the retail market.   This is an encouraging sign for Wal-Mart and will help it continue its growth in the U.S.
Growth In E-Commerce Business Backed By Technological Enhancements
The U.S. customers are increasingly turning to online shopping, which makes the e-commerce channel vital. Forrester forecasts that online sales in the U.S. will grow 13% to $262 billion in 2013 and reach $370 billion by 2017.  Although Wal-Mart does not report its e-commerce revenues, Internet Retailer estimated its online sales to be around $4.9 billion in 2011, accounting for just 1% of its overall sales.  It’s quite clear that there is an incredible growth opportunity for Wal-Mart here. The company is looking to integrate its stores and e-commerce channel to provide a seamless shopping experience. It plans to utilize its vast physical presence across the country as an e-commerce fulfillment network. Also, Wal-Mart will soon start offering gift cards and mobile coupons along with the “Scan & Go” service.  These strategies can help the company double its e-commerce revenues by the end of fiscal 2014. 
Additionally, Wal-Mart’s focus on technology and social media is likely to complement its long term growth. The retailer has made strong efforts to improve its IT capabilities and has leveraged social media to reach its prospective customers. Its digital technology unit, @WalmartLabs, creates platforms and products around social and mobile commerce. Since its inception, @WalmartLabs has been actively scouting for acquisitions. In November 2011, it acquired Grabble, the maker of ‘point of sale technology’ that ties in with mobile phones. In 2011, it partnered with Facebook and also acquired Kosmix, a social media company to promote its offerings.  
Wal-Mart also offers the ‘pay with cash’ facility wherein customers can order online from a wide range of merchandise and pay with cash at its stores.  This allows the customers who do not own a credit or debit card to buy online, thus boosting online traffic. ‘Pay with cash’ is gaining significant acceptance among Wal-Mart’s customers and accounts for more than 50% of the retailer’s online sales. 
Efforts For Driving Store Traffic
As Wal-Mart’s customers remain cautious about their spending, the retailer is offering less expensive products in smaller packets.  Recently, the company came out with plans to place lockers in its stores where customers can pick up products ordered online. During the first quarter, Wal-Mart continued testing its mobile self service checkout system “Scan & Go”, which allows customers to check out conveniently. By the end of Q1 fiscal 2013, 38% of the retailer’s stores had this service installed and the customer response was encouraging.
Additionally, Wal-Mart is rigorously monitoring a number of metrics such as customer line lengths, customer experience scores, and merchandise in-stock levels to devise relevant strategies and ensure smooth operations. With some improvement in the process of culling and handling, the retailer places the freshest product assortments in its stores. 
Our price estimate for Wal-Mart stands at $80, implying a premium of about 5% to the market price.Notes:
- Wal-Mart Company Statistics, Statistics Brain, July 31 2012 [↩]
- Wal-Mart’s SEC filings [↩]
- NC is test market for smaller Walmart Express stores, News observer, July 21 2012 [↩]
- Wal-Mart’s Q4 fiscal 2013 earnings transcript, Feb 25 2013 [↩] [↩]
- Wal-Mart’s Q1 fiscal 2014 earnings transcript, May 16 2013 [↩]
- U.S. Online Retail Sales To Reach $370 Billion By 2017, Forrester, March 13 2013 [↩]
- Wal-Mart’s Evolution From Big Box Giant To E-Commerce Innovator, Fast Company, Nov 26 2012 [↩] [↩]
- Wal-Mart’s Q1 fiscal 2014 earnings transcript, May 16 2013 [↩] [↩]
- Walmart Announces Acquisition Of Social Media Company Kosmix, Walmart, April 18 2011 [↩]
- Facebook, Walmart Partner Up To Create Pages For Individual Stores, Huffington Post, Oct 11 2011 [↩]
- Wal-Mart Announces “Pay With Cash” For Online Purchases, Walmart, April 26 2012 [↩]
- Wal-Mart Delivery Service Says To Amazon: ‘Bring It’, The Wall Street Journal, Oct 9 2012 [↩]
- Wal-Mart Says Customers Remain ‘Stretched’, The Wall Street Journal, May 16 2013 [↩]