Where Walmart plans to shrink, and to expand

NEW YORK - Walmart (WMT) cut its outlook for revenue growth for the current fiscal year as it confronts a tough global economic environment.

The world's largest company now expects annual sales to be up 2 to 3 percent, down from its guidance of 3 percent to 5 percent growth that it released a year ago.

The reduced guidance, announced at its annual analysts' meeting, comes as the Bentonville, Ark.-based retailer reduces its capital spending on its physical stores because of its move to halve the store growth of its supercenters. At the same time, it's increasing its investment in online operations in an effort to pursue customers where they are shopping.

That means spending $10.4 billion to $11.4 billion in capital expenditures on its physical stores during the next fiscal year. That's down from $11.6 billion to $12 billion being planned for the current year. The company plans to spend $1.2 billion to $1.5 billion on its e-commerce operations this fiscal year, up from a planned $1 billion this year.

It's also conducting a major review of its U.S. Walmart business and will update investors on its plans early next year, executives said.

"We'll give customers the choices they want and need by integrating digital and physical retail," said Doug McMillon, Walmart's CEO and president, who took over the reins from Mike Duke in February. "We won't be just a store on the street. We'll support our customers' lives with them in the driver's seat, to save them money and time."

Under his stewardship, he's been accelerating the company's push to redefine its role in a fast-changing retailing environment.

The company is aiming to revive business at Walmart discount stores, which have not recorded growth in sales at locations open at least a year for six straight quarters. The business, which accounts for 60 percent of the company's total sales of $473.1 billion, have been plagued with broader issues, including a slowly recovering economy that hasn't benefited its low-income shoppers.

Walmart also is wrestling with changes in shoppers' behavior. Customers are increasingly heading online to research and buy, at the same time they're wanting to shop at small stores for convenience. But Walmart has also been tripped up by its own mistakes like being out of stock on items shoppers want.

"There's no excuse for us not to be doing better," McMillon said.

In the short term, perking up sales at its U.S. Walmart business means keeping items that shoppers want in stock and speeding up checkout lines. This holiday shopping season, Walmart says it will open more cash registers than ever. It also needs to get better with its prices.

In the long term, the company is dissecting every part of its business as it continues to test and learn what works. One big change: Walmart has ended its program of tethering its small stores with its supercenters. The purpose was to use the big stores as distribution hubs to supply goods for the smaller locations. But Walmart said the model wasn't sustainable.

The company has overhauled its website to make it faster and better personalize offerings to its users. At the same time, it's testing same-day delivery in several markets. But the company aims to further integrate e-commerce with all of its divisions.

"I really believe our future is bright," McMillon said. "There are so many ideas percolating around."

Greg Foran, the former Walmart Asia chief who recently became head of the U.S. Walmart division, told investors that when he first started his new job he asked managers to send him three ideas for how it could improve business. He received 3,000 emails and noted that he's been taking action. One area is improving the freshness of its produce.

But the big change is how Walmart is taking a hard look at its fleet of more than 4,000 stores in the U.S.

The discounter told investors that it plans to open 60 to 70 supersized stores during its next fiscal year, down from the planned 120 this year

Foran told investors that supercenters, which average about 180,000 square feet and carry general merchandise, food and pharmacy items, are still important. But Walmart needs to think about how they should look.

As for its smaller stores, the company also plans to add 180 to 200 Neighborhood Markets next year, from 170 stores scheduled for this year. It's reducing growth of its smaller Walmart Express stores. It plans to open 20 stores next year, down from the expected 70 this year. Walmart Express stores are about 12,000 square feet, while the Neighborhood Markets average about 40,000 square feet.

It's also rebranding Walmart Express stores to Neighborhood Markets while reducing its offerings in seldom-purchased items such as shower curtains and stocking more items that shoppers want every day such as diapers.

The company plans to add 9 to 12 Sam's Clubs in its next fiscal year, down from the planned 20 new clubs for this fiscal year.