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Wal-Mart plans to aggressively pursue business in emerging markets around the world, including Mexico, China and Brazil.
This story first appeared in the October 29, 2008 issue of WWD. Subscribe Today.
The second and last day of Wal-Mart Stores Inc.’s analyst and investor meeting in Bentonville, Ark., focused on the retailer’s international operations as well as the Sam’s Club warehouse division, with both businesses stressing the importance of growing return on investment and refocusing capital expenditures.
International accounted for 24 percent of Wal-Mart’s $374.5 billion in net sales last year. With the company reaching saturation in many U.S. markets, international has been seen as a growth engine.
The focus of capital expenditures on the international front has moved from mature markets to emerging markets. “Two-thirds of our capital went into mature markets,” said Mike Duke, vice chairman and chief executive officer of Wal-Mart International. “Our allocations in the next five years will shift to the emerging markets,” with 53 percent of the total going to growing countries such as Mexico, China and Brazil.
The reason: Stores in emerging markets have begun performing well. “Our operating profits in China cause us to be even more interested in serving more customers in China,” Duke said. “We are building smaller stores and we’re building stores that require less capital to enter a market. In Brazil, we’ll be investing more in Maxi, a 30,000-square-foot to 50,000-square-foot cash-and-carry format. Even when we build Supercenters in Canada now, we would build a smaller footprint.”
In Japan, however, Wal-Mart sees an opportunity for consolidation. “Building a lot of square footage in Japan is not easy,” Duke said. “There may be opportunities to take over existing square footage. We’re also open to the idea of exploring merger and acquisition opportunities in Japan.”
Wal-Mart plans to open its first cash-and-carry store in India in the first half of next year through a venture with India’s Bharti Enterprises.
And, after much tweaking and repositioning, George has become a success story at ASDA, the U.K. supermarket acquired by Wal-Mart that also sells apparel, home products and other general merchandise, said ceo Andy Bond. “Customers have said that George is the second most important reason they shop at ASDA, so getting this right has been so important,” he said.
Doug McMillon, president and ceo of Sam’s Club, said the economic crisis plays to the retailer’s strengths, however.
“It’s always been good to be in the warehouse business,” he said. “It is particularly good right now to be in the warehouse club business. Share is shifting and all three players [Costco and BJ’s Wholesale Club] are doing well. Last month, Sam’s had a 4.6 percent comp-store sales increase, excluding fuel.”
Sam’s Club announced two new retail concepts. A prototype with 100,000 square feet of space is being tested in Garden City, Kan., population 40,000. Sam’s Club is also introducing a store concept geared to a Hispanic audience called Mas Club, which will carry an expanded assortment of products imported from Mexico. Mas Club is to open in the first half of next year in Houston.
Mas Club will really be a stand-alone business with its own membership fee. In addition to a selection of Hispanic foods and international brands, there will be space for an outdoor shopping and event area, and the cafe will sell freshly made tortillas.
Sam’s Club has seen some price resistance from its members. “The thing that makes me confident in our ability to thrive in this storm is that we have the best prices,” McMillon said. However, while sales of fresh food have been strong, general merchandise has been more challenging.
“In the last 90 days, our diamond business has been down by double digits,” he said. “In some cases, it would be the tendency of a merchant to reduce quality. Our focus is on holding that quality level and managing the units we purchased so when we come out of this economic cycle, we won’t have harmed our image.”
The retailer is trying to get new members with higher incomes, and is appealing to its wealthier customers with holiday and entertaining guides that feature gourmet food and electronics. Not to be outdone by Neiman Marcus’ Christmas catalogue, Sam’s is offering once-in-a-lifetime packages such as a behind-the-scenes tour of Graceland, including limo pickup and a five-star hotel stay. “If you want to be able to tap into green in a really cool way, the world’s ultimate electric super car” is available for $100,000. In the past, Sam’s sold items such as a $2.3 million Learjet.
Sam’s is appealing to consumers who may not want to spend $35 on a membership. It has begun a campaign with the tag line, “Give us $10 and 10 weeks and we’ll show you that it pays to be a member at Sam’s Club.” The company claims that the $10 membership for 10 weeks is not a discounted membership, rather, at one dollar per week, it’s a little more expensive.
Speaking at the conclusion of the conference, H. Lee Scott, Wal-Mart Stores’ president and ceo, said, “There’s nobody who has visibility through this market. We’re all living through something that we have not been through before….We will continue even in these difficult times to be thoughtfully aggressive. We are not defensive.”