It’s become something of an annual ritual for retail pundits. Every February, around this time, Walmart Canada reveals how much it will spend on store construction.
In some years the number has been massive. In 2012, Walmart committed $750 million to build, renovate or expand 73 stores. Typically, however, it spends less, as it did last year when it budgeted $376 million on 35 stores.
This year’s number is even lower. On Wednesday, the Mississauga, Ont.-based retailer announced it would spend $230 million to open 29 Supercentre stores.
Only two of those stores will be brand new. Another seven are discount stores that will be expanded into Supercentres. Another 20 are discount stores whose interiors will be renovated to become Supercentres. Unlike Walmart’s traditional discount format, Supercentres carry a full line of groceries, including fresh foods.
When all the projects are completed by next January, Walmart will have 396 stores in Canada, of which 309 will be Supercenters and only 87 will be the company’s traditional discount format.
But while Walmart is spending less on new stores this year, it is investing in other areas to increase its capabilities in two key growth areas for the company: e-commerce and food.
As an example, Walmart is spending $75 million this year on distribution. That includes building a new fresh food warehouse and its first two e-commerce warehouses.
The e-commerce warehouses address Walmart’s growing online business in Canada, Andrew Pelletier, the company’s vice-president of corporate affairs and sustainability, told Canadian Grocer on Wednesday.
An additional $35 million this year will go to other e-commerce initiatives, including expanding online product assortment, website and delivery programs.
E-commerce is a “key facet of growth for us” Pelletier said, noting that Walmart Canada’s customers are no longer solely shopping in stores.
“They’re looking for multiple access points,” including the ability to shop online, research online, as well as buy in stores, he said.
In December, Walmart expanded its Grab & Go locker program to 33 additional stores in the Toronto area after a 10-store pilot program launched in August in that market.
Grab & Go lets shoppers order online, then pick up from using a personalized PIN assigned to a locker.
Walmart Canada would appear to have plenty of room to grow in e-commerce.
In a note to investors on Wednesday, BMO analyst Peter Sklar estimated that the company generates about $300 million in annual e-commerce revenue, while the total Canadian e-commerce market is $16 billion to $20 billion.
Pelletier said that Walmart is second only to Amazon in website traffic and that Walmart Canada is now one of the country’s largest online sellers of dry groceries.
Walmart said it would reveal the locations of its new stores and warehouses in coming weeks and months as projects are finalized.
The news comes after U.S.-based retailer Target announced it is pulling out of Canada and will be shutting down all 133 of its Canadian stores.
Target acquired the leases from retailer Zellers back in 2010 and has said it will work with an advisor to sell them.
On Wednesday an Ontario judge gave the green light to a compromise between Target Canada and its landlords over properties the retailer will soon leave vacant.
The revised agreement, which was reached earlier this week but required court approval, gives Target Canada until the end of June to finish selling its store leases.
Asked whether Walmart could add even more stores this year by bidding for the former Target stores, Pelletier said “it’s too early to speculate.”
However, Sklar wrote that Walmart’s 2015 expansion plan as it stands now “could be at a lower level versus previous years as a result of the potential opportunity for Walmart Canada to acquire a number of locations that Target will be vacating in May or June of this year.”
He added that, given the size of Target stores and lease restrictions that would benefit mass merchants bidding for the spaces over other types of retailers, “Walmart Canada could be in a position to acquire disproportionately more Target locations than other retailers.”
Canadian Tire and Loblaw are two other major retailers mentioned as being likely bidders for the Target stores.
For now, Walmart’s smaller store expansion this year may good news for the grocery industry, which has witnessed an explosion in retail food square footage in recent years.
National Bank Financial analyst Vishal Shreedhar estimates that Walmart’s food square footage growth this year will be 3.3 per cent. That compares to a 5.2 per cent growth rate last year and, over the last 10 years, a 9.6 per cent CAGR growth rate.
Shreedhar estimated that food square footage in Canada would grow one to two per cent this year, down from two to four per cent last year.
Walmart said this year’s expansion is expected to generate about 3,700 construction jobs, 1,000 store jobs and 300 distribution centre jobs across Canada.
The new supercentres are in addition to the 11 Walmart supercentres that opened across Canada in January.