Opposition by local community groups across the country, and by Wall
Street analysts, has taken a big bite out of Wal-Mart's projected new
store growth plans.
Widespread unhappiness on Main Street and Wall Street combined to force
the giant retailer to suddenly pull in its wings. The company has
admitted for many years that it is cannibalizing its own sales. But
Wal-Mart abruptly announced yesterday at its Annual Stockholder's
meeting that during its 2008 fiscal year, it will open between 190 and
200 new stores in the United States. Any of the 18,000 stockholders
present -- if they happened to open the company's 2007 Annual Report in
their lap -- would read that Wal-Mart's future expansion plans called for
"265 to 270 new supercenters." In just a matter of weeks, Wal-Mart
executives chose to depart from the "Management's Discussion" in their
Annual Report, and instead cut back expansion plans dramatically by 26%.
Two years ago, Wal-Mart CEO Lee Scott was quoted by the Chicago Tribune
as saying, "When we you get as large as we are, you have to paint a
picture in people's minds that you can still grow. Otherwise, they think
of $285 billion (in sales) and think 'That's the end of that.' Well, it
isn't." For several years, Wall Street's reaction to the retailer's
overly-aggressive U.S. construction forecast has been less than
encouraging. Two months before Scott's speech at the Executive Club in
Chicago, Bernstein Research Call issued a 13 page report warning
stockholders of the downside of Wal-Mart's superstore plans. The analysts noted that Wal-Mart's growth "is under siege in several regions
of the country from growing opposition by local communities... Local
opposition has successfully squashed numerous plans among big box
players in different parts of the country." Bernstein noted that
"heightened resistance could negatively impact these retailers by
slowing their square footage growth rates." Even modestly slower
long-term square footage growth could have both an earnings per share
and valuation impact, researchers said. Because of opposition groups,
"it is clear that (discount retailers) will need to pursue a
substantially larger number of permits going forward to hit their
internal square footage targets given the likelihood of many
Citizen groups' successes grew at a 21% annual rate in 2004 and 2005.
Sprawl-Busters records indicate that 46 Wal-Mart projects alone were
defeated or withdrawn in 2006. Not only has Wal-Mart suddenly slammed
the brakes for 2008, but the company said yesterday it would open about
170 superstores per year for the next three years. As proof that citizen
opposition has thrown Wal-Mart off its production schedule, the company
also admitted that as many as 80 of its supercenters which were expected
to have ribbon-cuttings in 2008, now have been deferred into 2009.
Roughly 30% of its planned stores are not coming in on time, and many of
these may never, in fact, open. Hence, the narrowing of the production
pipeline for 2008 and out years.
Wal-Mart said its deceleration plans mean adjustments will be made at
Wal-Mart Realty. The real estate division of the company has been
submitting supercenter sites as close as two or three miles apart.
Wal-Mart acknowledges that this amounts to picking its own pockets. "We
also have been focused this year on reducing cannibalization of existing
stores via our more strategic selection of U.S . real estate projects,"
explained John Menzer, the company's Chief Administrative Officer.
Whatever picture Lee Scott now is trying to paint about his company,
their growth colors are substantially muted. This strategic move by
Wal-Mart, saved for their Annual Meeting spotlight, not only kicked up
the price of the retailer's shares, but it also boosted share prices at
competing supermarkets, like Safeway, Kroger and Supervalu. More
importantly, it was a great morale boost for community groups across
America, who rarely get to see the collective power of their individual
local site struggles. These "slingshot coalitions" continue to hurl
rocks at Goliath, and clearly the missiles have hit their mark.