WAL-MART PLOTS BIG GLOBAL EXPANSION
Byline: David Moin
LAS VEGAS — Growing fast, with an estimated $33 billion in non-U.S. sales by the end of this year, Wal-Mart International hasn’t even scratched the world’s surface. Lots of countries are on Wal-Mart’s hit list, including the U.K., where its first supercenter will open in July and where the giant retailer already has a huge supermarket stake through its ownership of Asda. Turkey is also on the “radar screen,” and Wal-Mart might even enter Africa one day.
Yet according to John Menzer, president and chief executive officer of Wal-Mart’s international division, China poses the really big expansion opportunity, with mind-boggling potential for volume growth. Wal-Mart currently has six stores there under a joint venture agreement.
“China is the country of the future. Wal-Mart could double its size just with expansion in China, but it may take 20 or 30 years,” Menzer on Tuesday told a crowd of 2,000 real estate developers, mall operators, retailers, brokers and suppliers at the annual convention of the International Council of Shopping Centers here.
Last year, Wal-Mart posted $165 billion in sales and $5.4 billion in net income. This year, the retailer is poised to become the world’s largest company and is expected to soon surpass General Motors. The international division posted $23 billion in sales last year. “China is a market largely untapped by modern retailers,” Menzer said, adding that so-called modern retailers account for only 4.4 percent of retail sales in China. Currently, Wal-Mart officials are spending a lot of their time fostering government and public relations in China and other countries.
“Anywhere you go, it is very important,” Menzer said of developing local relationships. To lock in sites, for example, Wal-Mart often seeks approval from both local governments and provinces.
Regarding other key foreign markets, Menzer characterized Germany as a “work in progress,” with profitability in that country on a three-to-five-year timetable, similar to what Wal-Mart experienced in Canada.
The international division was launched in 1991 with a joint venture in Mexico, and that country remains “one of our favorite emerging markets,” Menzer said, where over half the population is under 21 years old and where Wal-Mart operates a variety of formats, including Sam’s Clubs, supercenters, grocery stores, Suburbia apparel stores and even restaurants.
But Wal-Mart had a tough time in Indonesia in the Nineties and has pulled out of that country.
In response to a question from the audience, Menzer said, “We have Turkey on our radar screen. Someday, we may be there. We have a lot of countries on our radar screen.”
Other markets seen as growth opportunities are Puerto Rico, which has nine Wal-Marts and six Sam’s Clubs; Argentina, which has 10 supercenters; Brazil, which has nine supercenters and six Sam’s Clubs, and Korea, which has five units.
However, as Wal-Mart grows abroad, it is confronted with unusual real estate challenges requiring creative store designs and some higher costs. Consequently, Wal-Mart is feeling a little lonely far from its home base of Bentonville, Ark., and is looking for partners.
“Not many developers are competing in overseas markets. We would love to have some help,” Menzer told the audience during a “blockbuster” session. “Where is everybody? Why don’t you join us, because it is exciting.”
Menzer said that in many countries, there are old factories and other available real estate that could be converted to stores. The retailer has even gone underground, choosing to build a subterranean unit in China, below a soccer field and stadium.
But Wal-Mart is no expert in property development. Instead, said Menzer, as it continues to grow overseas, the company wants its focus to remain on the consumer and running one store at a time.
Decisions on locations in different countries, and how stores are merchandised in different markets, are made on a decentralized basis. Menzer noted that every Friday, the company conducts conference calls to discuss the best practices seen around the world at Wal-Mart and its competitors.
During the same session, Joe Ellis, a limited partner at Goldman Sachs & Co., said that there are two areas where “globalization is moving quickly.” The first is hypermarkets, which are generally referred to as supercenters in the U.S. He described them as the fastest-growing mass-merchant format, with enormous potential for American growth; there were 1,107 such stores in the U.S. at the end of 1999, most of them concentrated in the West and Midwest regions.
The other format for rapid retail globalization is apparel specialty chains. Ellis cited Zara, H&M, Mango and French Connection as some of the European chains fated for big futures in the U.S. Other possibilities are Club Monaco, Bebe and Banana Republic for foreign expansion beyond North America.