Archive for Sunday, March 30, 2003

Wal-Mart looks overseas for growth

Retail giant saturates U.S. market, seeks to expand elsewhere

March 30, 2003

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— A Wal-Mart store bustles as customers roam the aisles in search of bargains and snap up free samples of tequila before bundling their purchases into waiting taxis.

The activity is proof that Wal-Mart Stores Inc. has learned how to achieve the same kind of success in its international ventures as it has in thousands of stores across the United States.

Wal-Mart, which grew up in small-town America, is increasingly dependent on foreign expansion as it faces slowing growth at home.

"The U.S. market is pretty saturated," said Ken Perkins, retail analyst for Thomson First Call. "Clearly, they need to expand into foreign markets to generate the ongoing growth they've had."

Wal-Mart, which opened its first store in Rogers, Ark., in 1962, grew into the world's largest retailer and the world's largest corporation by concentrating first on small, rural towns where it had little competition. Its trademark yellow smiley face, low prices and focus on customer service were later introduced to larger U.S. cities and then abroad, to Mexico, Canada, Puerto Rico, Argentina, Brazil, Britain, Germany, South Korea, Japan and China.

The formula of low prices and good service works in other countries as it does in the United States.

"The majority of what I look for is here. They have specials, and the prices in general are more accessible. This is where I save money," said Enrique Flores, a government worker shopping at the Mexico City store.

Giant thrives in Mexico

Wal-Mart's first foreign store was a Sam's Club opened in 1991 outside Mexico City. Wal-Mart is now the biggest retailer in Mexico and is tackling the rest of the Americas, Asia and Europe.

Although Wal-Mart built its business from scratch in the United States, in overseas markets it starts out by purchasing already successful local chains. It also differentiates its foreign stores from its U.S. outlets, buying at least 80 percent of its merchandise from nearby vendors to keep costs down and cater to customers.

In Mexico, where 90 percent of merchandise is bought locally, bakery staples include freshly made tortillas and, around the Day of the Dead holiday in November, "bread of the dead." In Argentina, the clothing department stocks school uniforms.


"By going global, we have an opportunity to understand who the local manufacturers are," said Ray Bracy, vice president of international corporate affairs for the Bentonville, Ark.-based Wal-Mart. "And we can explore whether they can support us globally."

In Mexico, the company has 597 stores and restaurants in 58 cities. In addition to the discount chain Wal-Mart and its bulk cousins Sam's Club and Bodega, Wal-Mart owns VIPS, diners that serve everything from cheeseburgers to chicken enchiladas. It also owns the supermarket chain Superama and the clothing and home goods store Suburbia.

Forty percent of Wal-Mart's 1,270 foreign stores are in Mexico. Inside the United States, Wal-Mart has more than 3,400 stores.

Sales grow overseas

Overseas growth has not been trouble-free. In Germany, Wal-Mart lost a long court battle with regulators over selling staple foods below wholesale prices. In Puerto Rico, the government tried to block its purchase of a local supermarket chain, arguing that it violated antitrust laws.

Even in Mexico -- where real estate billboards brag: "Houses in front of Wal-Mart!" -- the federal antitrust agency ordered the retailer to subscribe to a code of conduct for its dealings with suppliers.

But the company's international operations grew 11.4 percent during the fiscal year that ended in January, and generated $41 billion in sales, or 17 percent of the company's total income. In South Korea alone, the chain reported $340 million in sales in 2001, up 40 percent from the year before.

Asia is a big focus for the company. In December, Wal-Mart announced it was raising its stake in the Japanese supermarket chain Seiyu to 34 percent to become the top shareholder.


Two months earlier, it said it planned to open an unspecified number of stores in Shanghai, adding to the 22 stores already in China that draw huge crowds of customers.

The plan is part of Wal-Mart's desire to not only export from China, but set up shop there. It says it imports $12 billion a year in goods from China, and now wants to sell those products in the country's developing consumer market.

In Mexico, there is little resentment that a U.S.-owned company is the largest retailer, competing with stores like Costco and French supermarket giant Carrefour.

The chain often clusters its stores and restaurants together. On weekends, the complexes fill with shoppers attracted by low prices and promotions that include everything from clowns to small amusement-park rides.

Pricing basketballs with her daughter, Hermilinda Antonio repeated what most customers said draws them to Wal-Mart: It has everything, and it's cheap.

"You just follow the little smiley face," Antonio said.

The biggest complaint about Wal-Mart internationally is usually from its competitors.

In Mexico, the cavernous stores have cut into the country's lively street trade. Vendors in the centuries-old markets of Tepito, a rough neighborhood known for selling stolen and cut-rate goods, complain that Mexicans now prefer to buy their televisions and DVD players from Wal-Mart.

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