WAL-MART’S STRATEGY: SOUTH AND EAST
Byline: Valerie Seckler
NEW YORK — Young, underserved populations, along with economies that are for the most part gaining steam in Latin America and Asia, will keep the focus of Wal-Mart’s near-term international expansion on those regions.
That was the word from a spokesman for the world’s largest retailer, based in Bentonville, Ark., who detailed Wal-Mart Stores Inc.’s plans to launch 30 to 35 new foreign stores this year.
Those openings will include nine stores in Canada, eight units in Mexico, four stores in Brazil and four more in Argentina. In addition, the retailer will launch another five to nine stores in Indonesia, China and Puerto Rico this year. Last year, Wal-Mart opened 26 stores in Mexico, five in Canada, three in Argentina and two in both China and Indonesia.
“Canada, Mexico and Puerto Rico are our most mature markets and the ones where we’re profitable,” the spokesman said. In South America and in Asia, he noted, “We’re seeing the traffic and the business build, but the profits will take a while.”
Wal-Mart has estimated it takes about three years to make money after entering a new region such as South America, where it opened up shop just a year ago, or in China, where the first Wal-Mart store bowed in August 1996.
For the fiscal year ended Jan. 31, Wal-Mart’s sales abroad totaled $5 billion, up 35 percent from the $3.7 billion generated in 1995. The international business notched a full-year operating profit of $24 million, versus a prior-year operating loss of $16 million. In the fourth quarter, the division had operating profits of $65 million, against a loss of $13 million.
So far, the retailer has found the greatest success in South America with its Wal-Mart Supercenters, while its Sam’s Club in Shenzhen, China, is outperforming its supercenter in that city, the spokesman reported.
General merchandise business in South America is largely price driven, and the Wal-Mart spokesman acknowledged that several hypermarkets in Brazil and Argentina compete with the American company “fairly well.” But he contended the competition is fiercest in marketing food and that Wal-Mart has had an edge in other categories.
“The quality of our general merchandise, especially in clothing, is something most South American shop-pers haven’t seen in supercenters, where there’s more emphasis on food,” the spokesman maintained.
In addition, he pointed out that Wal-Mart’s competitors in South America for years had offered a narrower selection of the goods Wal-Mart merchandises, but at higher prices — allowing Wal-Mart to fill in the gap.
“We carry about 60,000 items in our typical supercenter, or about twice what our competitors carry,” the Wal-Mart official said. “We stuck to our strategy of everyday low prices, and the shoppers responded.”
In contrast, the Sam’s Club in Shenzhen is outperforming the supercenter there, he said.
“There’s a real hunger for the food and liquor sold at Sam’s, as well as durable appliances like washing machines, and consumer electronics.”
The spokesman also cited the importance of status symbols in Chinese culture and suggested that Sam’s status as a membership club could appeal to some Chinese consumers as a result.
“We believe it is likely that both the supercenter and Sam’s formats will be successful in the long run in Asia and South America, but we’re still testing the waters to see what will and won’t work well,” he concluded.