Wal-Mart CEO Sees Modest Improvement in '04

NEW YORK — Keynoting the National Retail Federation's annual show last week, Wal-Mart Stores Inc. president/CEO H. Lee Scott told attendees he saw more consolidation in the retail world as manufacturers merge, one feeding off the other.

Family-owned enterprises will sell out, like Japanese retailer Seiju's 35 percent stake sale to the $244.5 billion Wal-Mart. Midsize firms will have to combine to stay competitive. Moreover, shopper response to Wal-Mart stores has sparked a move to the extremes.

“Large stores are continuing to do extraordinarily well,” Scott told thousands of retail delegates in New York. “Our most productive supercenter is our 200,000-square-foot supercenter.”

Equally productive are its 99,000-square-foot stores like those in metro markets, Scott said, notably in Florida.

Wal-Mart, Bentonville, AR, plans to add 50 million square feet of retail space this year to reach a total of 650 million. This month alone it will add 63 stores nationwide.

Based on sales, Wal-Mart found 2003 was “modestly better” than 2002, Scott said. He expects the same improvement this year.

“The tax stimulus package is very positive for the economy,” he said. “It put more money in pockets.” Consumers with modest incomes getting tax refunds tend to file earlier and get refunds sooner. It puts more money into the first half of the year, which works to retailers' advantage in that period.

Though jobs are growing at a slow pace — only 1,000 were added nationwide in December — consumers are responding to product innovations. Even if money is tight and consumers are in debt, “they find the money to buy it,” Scott said.

Another major change this year is radio frequency ID to track products on shelves for replenishment. Such scanning technology will let retailers drive down costs, catch shrinkage and aid inventory management.

For Wal-Mart, it also will improve turns. The retailer currently generates six turns a year, meaning the average piece of merchandise sits 60 days before leaving the store, excluding items like diapers and toilet rolls.

“Wal-Mart has billions of dollars of inventory [in stores] … we won't need that much space,” Scott said. “It'll reduce markdowns. The competitiveness of this industry means that the savings will get passed on to the consumer.”

But there are industry challenges. Healthcare is one.

“We believe it's time for the government to step in to get a handle on the healthcare costs,” Scott said.

Another issue is legal. Scott starts his day by reading the sales report, followed by a visit from Wal-Mart's chief general counsel.

“We need tort reform … class-action lawsuits need to be brought under federal jurisdiction,” he said.

Wal-Mart recently faced legal claims from a woman who said she was injured in one of its stores over the holidays. She had made similar claims previously against other retailers.

Wal-Mart also faces discrimination lawsuits and a federal investigation into the alleged use of illegal workers, as well as alleged labor violations.

Environmental laws, too, are considered a restraint. Scott said it was easier to open a factory in another country rather than buy one in the United States that was stained with Environmental Protection Agency violations. He is watching how California resolves these issues because the state is a microcosm for the country.

“I think it's time the retail industry came together,” Scott said. “One of the problems with this industry is that we don't have a common voice … Combining our power is good not only for you and your company, but also the consumer.”

As expected, Wal-Mart was upbeat on global trade. Europe is growing more attractive as the European Union eliminates borders. Moscow and St. Petersburg in Russia also are enticing retail markets.

Wal-Mart considers itself successful in Argentina and Brazil in Latin America. It is the No. 1 retailer in Mexico and just acquired another retailer in Canada.

In Asia, India's strong middle class of 250 million to 260 million is attractive to multinational retailers. Consumer spending is growing, and the country's gross domestic product rose 7.5 percent in 2003.

“India is making changes in government that will support retailers,” Scott said. “You'll see more global retailers enter India in the coming years.”

Likewise, he expects solid growth in China. Wal-Mart has 34 stores in that market. He quoted previous Wal-Mart CEO David Glass as saying, “China is the only place where Wal-Mart has a chance to replicate what it did in the U.S.”

He told the audience that the idea of free trade was here to stay; otherwise, consumers would pay more for the same product made in the United States. Even when Wal-Mart wants to buy American, the economics do not support it, nor do the sales.

“We can put products on the shelf,” Scott said. “We can't tell customers what to buy.”

Scott advocated retraining and education to help citizens move to the next job.

“The world is changing, and it is going to change at times in ways that are uncomfortable to us,” he said. “[Plus] there's a significant boom in productivity. So it's difficult to create jobs if productivity is going up.”

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