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Will Walmart’s Store Closures Have a Big Impact on Fiscal 4Q16?

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Walmart announces strategic realignment of retail priorities

On January 15, 2016, Walmart announced that it would close 269 underperforming stores in the United States and overseas. This number represents about 2.3% of Walmart’s global store count of 11,554 as of October 31, 2015.

However, the stores that will close represent less than 1% of Walmart’s worldwide sales and retail footprint in terms of square footage. The retailer (RTH) (XRT) earned global sales of over $485 billion in fiscal 2015. Costco (COST) earned $116.2 billion, Kroger (KR) $108.5 billion, Target (TGT) $72.6 billion, Publix (PUSH) $30.8 billion, Ahold (AHONY) $32.8 billion, Delhaize (DEG) $21.4 billion, Dollar General (DG) $18.9 billion, and Whole Foods (WFM) $15.4 billion in their last respective fiscal years.

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Walmart Express pilot ends

Out of the 269 store closures, 154 are located in the United States. As part of the review, Walmart also announced that it will discontinue its Walmart Express pilot program and close 102 Walmart Express stores in the United States.

Walmart Expresses are small-format stores, but the retailer has shifted its focus to larger small-format neighborhood market stores as a way of increasing sales in high-density urban areas. Walmart’s also focusing on its larger supercenters. Neighborhood market format stores average 42,000 square feet in size, and Walmart’s supercenter format averages 178,000 square feet. Walmart does plan to shutter several underperforming stores in these two formats as well as part of its review.

Brazil closures

Walmart also announced 115 store closures in overseas markets, including 60 in Brazil. The remaining stores are mostly in Latin America and loss-making, according to the company.

Brazil is one of Walmart’s five largest overseas markets. As of October 31, 2015, Walmart operated 558 stores in Brazil. Walmart’s performance in Brazil has been a challenge lately, partly due to the macro issues facing the country and partly due to the higher US dollar. The 60 store closures in Brazil represent about 5% of the company’s sales in the country.

New stores

Despite the closures, Walmart plans to open over 300 new stores in fiscal 2017, including 50 to 60 supercenters, 85 to 95 neighborhood format stores, and seven to ten Sam’s Clubs. Internationally, Walmart intends to open between 200 and 240 stores in the coming year.

The planned closures are expected to impact Walmart’s earnings in both fiscal 4Q16 and fiscal 2017. Read about the impact and earnings expectations in 4Q16 in the next part of this series.

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