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Wed, Aug 29, 2007 - Page 10 News List

Wal-Mart mulling new retail formats

COMPETITION With same store sales slowing, the US retail giant is looking for new store types to complement its existing network and fend off competition from Tesco


Wal-Mart Stores Inc said on Monday it was considering new store sizes and types in the US market but played down the possibility of acquisitions as it faces slowing sales growth at its older stores and new competition from British rival Tesco PLC.

The world's largest retailer said it is hiring managers for a team to consider new formats besides the retailer's four established US types. Those are Wal-Mart discount stores, Supercenters that combine groceries and general merchandise, Sam's Club membership stores and Neighborhood Market grocery stores.

One of the job ads on Wal-Mart's Web site refers to potential mergers and acquisitions, but Wal-Mart played down the possibility it might buy existing businesses rather than develop its own.

The prospect of acquisitions was raised by the ad for a senior director of "multi-format strategies" whose responsibilities would include to "assess the strategic implications of any possible M&A [mergers and acquisitions] on our overall portfolios."

Wal-Mart spokesman John Simley noted that the reference to possible acquisitions came after a long list of other responsibilities for the job, most of which involve evaluating the market and finding opportunities for growth from new store types.

"The fact is, two months ago we posted a number of middle-management level positions to evaluate our existing formats with the aim of achieving better customer relevance," Simley said.

"It would be wrong to speculate about how that might translate into future M&A activity," he said.

Analysts said it makes sense for Wal-Mart to look at new formats, such as smaller stores, but that the retailer is not likely to go on an acquisition spree.

"Wal-Mart has been building things from the ground up for a long time," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages US$9.6 billion in assets and holds about 42,000 Wal-Mart shares.

Sam's Club bought some rival stores to complement its growth in years past, but the bulk of Wal-Mart's US growth has been through building new stores, she said.

Robert Buchanan, retail analyst at AG Edward & Sons, said the head of Wal-Mart's US stores, Eduardo Castro-Wright, came from Wal-Mart in Mexico where the retailer has six or seven formats and therefore is more experienced with running a variety of store types.

Buchanan said the timing is right for looking at new formats because of the imminent opening of Tesco's first US stores in southern California, Arizona and Nevada. The British grocery giant plans to open 30 stores called Fresh & Easy Neighborhood Markets, which are smaller than typical supermarkets.

"Wal-Mart is always trying new things," Buchanan said.

Wal-Mart might make a smaller acquisition in the next two or three years, Buchanan said, but added, "I don't see them going on a buying spree."

Wal-Mart's same store sales, or sales at stores open at least a year -- a key measure among retailers -- has been slowing and in the latest quarter rose a slim 1.9 percent.

Edwards said retailers as an industry are looking at smaller, more niche-oriented stores as shoppers apparently tire of big boxes. Wal-Mart could be expected to look at smaller options, too, she said.

"In retail you always have to do something new and different to keep the attention of the consumer," Edwards said.

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