Walmart savings will fund improvements to US stores

Staying true to the first promise in its strapline “Save money. Live better”, Walmart is embarking on a series of organisational changes in an attempt to drive further efficiencies across the company.

The changes, which are the most significant at Walmart since Mike Duke took over as chief executive last year, include the creation of three distinct regions in the US - West, South and North - the consolidation of its logistics, real estate and store operations, and the formation of Global.com, a new division that will oversee the retailer’s e-commerce operations.

The news proves that complacency is not an option for the world’s largest retailer. Walmart has unsurprisingly been a star performer in the recession, thanks to its focus on everyday low prices and strong value perception. But the retailer has not rested on its laurels, and has since the onset of the recession overhauled its Great Value line (the largest food brand in the US, with sales of around $200m) and embarked on a range rationalisation programme that will see 15% of SKUs removed from shelves in the US.

The retail giant has also committed to remodelling nearly 4,000 stores as part of its greater strategic plan, Project Impact.

By the close of the financial year ending in 2012, around 70% of Walmart’s US stores will be trading under an improved format.

Walmart is the only major US retailer so far to have significantly increased its capital expenditure budget for 2010. The latter is expected to be in the range of $13bn to $15bn (£8.16bn to £9.42bn), while competitor Target has slashed its budget in half this year to just $1bn (£628.1m).

The increased investment is needed to continue improving layout and merchandising in existing stores, which will be essential when it comes to retaining the more affluent shoppers Walmart has attracted during the recession once the upturn comes.

However, in order to fund the investments, the retailer is now taking a long, hard look at its value chain in an effort to strip out any excess costs - something Walmart happens to do quite well. Just last month, the company announced plans to close 10 underperforming Sam’s Club stores, and further divestments shouldn’t be ruled out.

In today’s economy, there is no room for inefficiencies for a retailer like Walmart.