Wal Mart

Wal-Mart: The Global Retailer

Wal-Mart is the world's largest retailer. In fact, it's the world's largest company, with sales last year totaling nearly $220 billion. Of that total, $35.5 billion were from the fast-growing Wal-Mart International Division. Wal-Mart is growing at an incredible clip, both at home and abroad. In the early 1990s, its sales were a little less than $85 billion; it had 2,200 stores and no international division. Today, it has over 3,200 stores, with about 1,100 of them outside the United States. Even though Wal-Mart continues to open stores in the United States, the biggest opportunity for future growth lies in international expansion.

Wal-Mart first "went abroad" to Canada when it purchased 122 Canadian Woolco stores in 1993. By mid-2002, it had 196 stores in Canada, where it was ranked the best retailer and the ninth best company for which to work. Following its move north, the retailing giant turned south into Mexico, using joint ventures and sometimes buying companies outright. Wal-Mart opened its first Mexican store in 1991. By mid-2002, it had opened 66 supercenters, 47 Sam's Clubs, 454 Superama supermarkets, 51 Suburbia Apparel outlets, 245 restaurants under the Vips division, and 110 Bodego units carrying a limited assortment of discount merchandise. In the first half of 2002, sales in Mexico totaled $4.9 billion, and the company announced plans to add 60 new stores in Mexico by the end of 2003. Obviously, Mexico has been a big success for Wal-Mart.

From Mexico, Wal-Mart moved to another Latin market, Puerto Rico. During the next 10 years, Wal-Mart opened 11 more Puerto Rican stores. In 2002 it announced that it would buy Supermercados Amigo, Puerto Rico's second largest grocery retailer. After the purchase, Wal-Mart would have 47 stores and an estimated $1.5 billion in Puerto Rican sales. Sensing a good market, Wal-Mart intended to invest $400 million more in Puerto Rico in the next five years.

Next, it was on to South America. In late 1995, Wal-Mart established stores in Brazil and Argentina. These have been Wal-Mart's most disappointing ventures in the western hemisphere. For one thing, the Argentinean economy is troubled; Argentina's presidency seems to be a revolving door, and inflation is spiraling upward. There's not much Wal-Mart can do about these environmental factors, but it has maintained 11 stores there in the hopes that the economic picture will eventually turn around. The picture in Brazil is a little brighter. There, Wal-Mart has 12 supercenters, 8 Sam's Clubs, and 2 small-format stores called "Todo Dia." Future investment in Brazil may follow the Todo Dia format of 45,000-square-foot stores selling general merchandise. These smaller stores enable Wal-Mart to enter crowded Brazilian neighborhoods where they could never locate a supercenter.

From Latin America, Wal-Mart moved into Asia. Wal-Mart's first stop in Southeast Asia was Hong Kong, where it entered a joint venture with Ek Chor Distribution System Co. Ltd. to establish Value Clubs. Because Ek Chor is actually owned by C. P. Pokphand of Bangkok, Wal-Mart was then able to locate in Thailand and Indonesia. Hong Kong was also a stepping stone to the world's most populous country, China. Wal-Mart opened its first Chinese store in 2000, operated 19 stores there by 2002, and plans to open 10 more there in 2003. It also operated 9 stores in South Korea (up from 4 in 1998), although growth potential there is not as good.

Wal-Mart has not overlooked Europe. In 1998, it bought the 21-unit Wertkauf chain in Germany; in 1999, it snapped up the 74-unit Interspar hypermarket chain from Spar Handel. Germany looked especially attractive because it is the third largest retail market in the world, behind the United States and Japan. From the start, however, Germany presented problems. Some of these involved real estate: strict zoning laws, scarcity of land, and high real estate prices. Another problem was well-entrenched unions, which were unlikely to allow their members to gather in the morning to respond to Wal-Mart's traditional "Give me a W; Give me an A . . ." motivational sessions. Another issue: retailing in Germany is dominated by a few large chains, generating intense competition. Finally, German consumers are among the most demanding in the world. Although not as price sensitive as consumers in some other countries, they are very quality conscious. This last point begs the question, Is Germany a good market for a discounter?

In fact, Germany has yet to work for Wal-Mart. By early 2002, the company was still experiencing losses across its 95 stores. In the summer of 2002, the retailer announced that it would close a store in Ingolstadt and merge two stores in Wilhelmshaven. Wal-Mart admits that it pursued too many initiatives too quickly in Germany and lost too many talented managers when the headquarters of acquired firms closed. But it will not give up on Germany and is tentatively eyeing more expansion possibilities there.

From Germany, Wal-Mart moved across the channel to the United Kingdom, where it bought the third largest U.K. grocery chain, ASDA. Why? Margins in the U.K. are among the highest in Europe, at 5 percent to 7 percent. The expansion into the U.K. has worked brilliantly--Wal-Mart now has 260 ASDA stores, which are its International Division's largest profit contributor. ASDA sales in 2001 contributed $15.3 billion of the company's $35.5 billion in international sales. With such strong growth, Wal-Mart plans to add 12 more U.K. stores in 2003.

What's in store for the future? Wal-Mart recently agreed to acquire 66.7 percent of Seiyu, Japan's fourth largest retail group. Ten years earlier, Wal-Mart had tried selling its private label cookies in Japanese stores, and consumers had grabbed them off the shelves. But they did not repeat their purchases because the cookies were too sweet and 30 to 40 percent of them were broken. Japan, like Germany, is a land of finicky shoppers.

Having learned this lesson in Germany, Wal-Mart is moving more slowly in Japan, meticulously studying consumer habits and preferences. However, Wal-Mart will face some serious challenges. Japanese consumers differ from the typical Wal-Mart shopper in other parts of the world. They want local merchandise, look for very fresh produce and fish, and are very detail oriented and want a lot of information about products. They want name brands, buy in small quantities--just a couple of days' worth of food at one time--and want items individually wrapped.

After Japan, there's Russia. In 2002, Wal-Mart began talks with ZAO Promyshlenno-Finanovaya Kompaniya BIN, which has 31 supermarkets across Russia with forecasted sales of $170 million. Wal-Mart would