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Wal-Mart seeks nimbler international expansion

Wal-Mart seeks nimbler international expansion
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First Published: Fri, Jun 15 2007. 01 12 PM IST
Updated: Fri, Jun 15 2007. 01 12 PM IST
New York: At Wal-Mart Stores Inc.’s annual shareholders meeting this month, the crowd was dazzled by a musical performance melding pounding drums, Latin dance and martial arts that was meant to showcase the company’s global reach.
The world’s largest retailer is increasingly turning to its international operations to dazzle investors as its US business struggles with limited growth and flagging sales at its nearly 4,100 existing stores.
“Wal-Mart has historically kind of reacted to opportunity, rather than planned a long-term strategy” for international expansion, said HSBC analyst Mark Husson.
Now the retailer is trying to “major in the majors,” as Mike Duke, who heads its international unit, is fond of saying. That means focusing on global markets where Wal-Mart can become a big player instead of simply planting a flag. The company is planning to sell goods that better meet local needs and has exited regions where it cannot gain a strong foothold.
Chief Executive Lee Scott told analysts at the annual meeting that Wal-Mart also needs to become even more flexible if it wants to be able to pounce on emerging global opportunities.
Wal-Mart needs “the structure to be able to reach out in partnerships and different kinds of relationships in a way that allows us to take advantage of these growing parts of the world when those parts are growing, not when we are ready to be able to move into those parts of the world,” Scott said.
International reach
Wal-Mart first went international in 1991, opening a Sam’s Club store near Mexico City.
It has since expanded across the globe, mainly through acquisitions, and now has operations in 13 markets outside the US, Mexico, Puerto Rico, Canada, Argentina, Brazil, China, the UK, Japan, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
The company is working with Bharti Enterprises to set up a joint venture for a cash-and-carry business in that country’s $300 billion retail industry, which is dominated by family-run stores.
Wal-Mart’s international sales jumped by 30% in its recent fiscal year ended in January to $77.1 billion -- a welcome surge considering that US sales rose by 8%, and US same-store sales, which measure sales at existing stores, notched their smallest advance on record.
The retailer’s international push has not come without setbacks. Its discount store model has clashed with foreign customs, and in a rush to expand, it did not always make the right acquisition.
Last year, Wal-Mart quit Germany after acknowledging that it misunderstood the country’s regulations, shopping habits and tastes. It also pulled out of South Korea after failing to gain market share.
Wal-Mart continues to struggle in Japan, where its local unit Seiyu Ltd. has posted five straight years of losses.
Faster change
CEO Scott wants the company’s track record in Japan to change -- and fast.
“That market is a great market, and that customer is not as well served as that customer can be,” he said. “And we need to get this thing nailed down and be aggressive about how we do it.”
Analyst Husson questioned why Wal-Mart would stay in Japan, given the country’s lack of population growth and consumer spending. Instead, he would like to see Wal-Mart focus on markets like India, Indonesia and Pakistan, with growing populations and demand for Wal-Mart-type goods.
The pressure is on for Wal-Mart’s international unit to boost returns in its current markets, while also being able to quickly enter new markets.
“The biggest challenge ... is how do we accelerate our capacity to move to the places that these consumer products companies and others are making extraordinary money today and getting extraordinary growth?” Scott said.
Don Gher, chief investment officer of Coldstream Capital Management, which owns Wal-Mart shares, said he will watch closely to see how Wal-Mart performs in the next year or two.
“It’s a fine balancing act,” he said. “It’s ‘Here’s the game plan, now deliver.´ And we’re in that ‘now deliver´ part.”
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First Published: Fri, Jun 15 2007. 01 12 PM IST
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