Wal-Mart's big shift: Fewer new stores, more Pa. warehouses
Going electronic, finally
"Business as usual is over" for U.S. retailers, even at Wal-Mart, which is finally putting the brakes on new-store construction as shoppers stay home and order over mobile phones and other devices, writes analyst David Strasser in a report today to clients of Janney Capital Markets in Philadelphia.
At the same time, Wal-Mart is building more big warehouses to ship goods straight to consumers -- and the Lehigh Valley warehouse district, on the free Interstates linking East Coast ports and markets, has emerged as one of the company's favorite shipping points. On Wednesday Wal-Mart said it would hire 300 workers for a second 1.2 million ft2 "e-commerce fulfillment center" in Bethlehem, in a state "Special Development Zone" (ex Beth Steel mill), which gives the company a $2,100/worker tax break for each of the next 10 years, said state spokesman Steve Kratz. Last year the company announced its "largest ever" warehouse (also 1.2M ft2) and 350 jobs nearby. Total cost: $96 million.
Wal-Mart is playing catch-up with Amazon, which already uses east-central Pennsylvania and nearby Delaware as a warehouse and shipping base. For Wal-Mart, more warehouses = fewer new stores: Wal-Mart store construction has slowed "from about 120 Supercenters this year, to about 60-70 next year," plus just "200 Neighborhood Market store openings... well below our 500 estimate," and "nil" for the dollar-store-sized Wal-Mart Express initiative, Strasser noted.
Wal-Mart is instead "increasing investments in e-commerce" which it long resisted. On balance, that means less debt, less capital spending, and a stock price that ought to "outperform in a time of market volatility," Strasser concluded. Though WMT is down with other big stocks today.