Wal-Mart Stores FY16 Spending Plan Reveals Big Shift to Digital

Wal-Mart Stores FY16 Spending Plan Reveals Big Shift to Digital

Wal-Mart Stores Inc. will slow new store openings next year and shift capital spending toward enhancing its e-commerce platform in a bid to catch up with rapidly changing consumer behavior.

“Our business and customers continue to evolve and so will the way we deploy capital,” said Charles Holley, Walmart’s executive vice president and CFO. “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.”

Walmart laid out its capital spending plans at its 21st annual investor day, where it also lowered its revenue forecast. The company said that as a result of a tougher sales environment than it anticipated a year ago, it now expects to grow net sales for the current fiscal year between 2 and 3 percent on last year’s $473.1 billion. The company indicated in February that it expected net sales growth to be at the low end of its guidance provided last October of 3 to 5 percent.

While Walmart still plans to add 26-30 million square feet of retail space in the fiscal year ending Jan. 31, 2016, that is down 12 to 19 percent from the 32-34 million it expects to add in the current fiscal year.

Spending on physical stores is forecast to reach $10.4-$11.4 billion, compared with $11.5-$12.0 billion in fiscal 2015. Capital spending on e-commerce and digital will rise from $1.0 billion to $1.2-$1.5 billion.

In the United States, the retailer will halve the number of Supercenters it opens to 60 to 70 in the fiscal year ended Jan. 31, 2016, compared with 120 in the current fiscal year. Walmart said it now expects to open about 240 of its small format stores this fiscal year, down from 270 to 300 forecast  in February. It open another 200 to 220 in fiscal 2016 under its Walmart Neighborhood Market brand. Finally it will also reduce openings of Sam’s Club stores from 20 in the current fiscal year to 9 to 12 in fiscal 2016. The plan will take total store openings from 380 in the current fiscal year to 269 to 302 in fiscal 2016.

At the same time, Walmart will boost spending on its e-commerce and digital platform by 20 to 50 percent. The $1.2-$1.5 billion in spending will include construction of new online fulfillment centers in Georgia and Pennsylvania, each over 1 million square feet. These centers will be part of its next generation fulfillment network that includes dedicated online fulfillment centers, shared distribution centers, and ship-from-store locations that are all tied together by one of the biggest and most efficient transportation networks in the country.

Walmart will also add new fulfillment centers in Brazil and China, while Sam’s Club will accelerate technology initiatives that integrate its physical locations in the United States with its digital platform.

Holley also discussed the financial performance of the company’s e-commerce business and provided more insight into certain financial metrics.

“Globally, we expect to finish this year with approximately $12.5 billion in e-commerce sales,” said Holley.  “Looking forward we expect an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and we anticipate growth over the three-year period from fiscal years 2016 through 2018 to average 30 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 added.

The company expects net sales to increase by 2 to 4 percent next year.

“This translates into approximately $10 to $20 billion of net sales growth,” Holley said. “Operating expenses will grow at a rate somewhat faster than sales growth and operating income will be flat to slightly down, given our investments in technology, e-commerce and digital.”