The Behemoth Retailer That Could

Today, the Financial Times reported that Wal-Mart is expanding its overseas expansion. Well color me surprised! Currently, international sales constitute 26% of the company’s net sales and this is while Wal-Mart is lowering its capital expenditures. In layman’s terms, this means that they’re slowing growth- or rather, they are being forced to by the market. So in order to sustain the company, Wal-Mart is looking to conquer new markets abroad. Thankfully, Asia and Eastern Europe are still up for grabs! 

Wal-Mart readies for overseas expansion

Wal-Mart, the world’s largest retailer, is embarking on a further round of international expansion on the back of a systematic overhaul of the way it runs its business, which is expected to deliver more than $100bn in sales this year.

The retailer is actively exploring a first move into Russia and neighbouring countries, while preparing to open its first wholesale warehouse stores in India next year in a joint venture with Bharti Enterprises.

Wal-Mart already has operations in 13 countries, which accounted for 26 per cent of its net sales last year.

Wal-Mart’s international square footage growth rate is now above that in the US, where it has now slowed the expansion of its profitable Supercenter format in the face of market saturation.

To support its international expansion, the retailer has set up new systems over the past two years to assess and integrate new international businesses, in an effort to avoid repeating the missteps that led to unsuccessful ventures in South Korea and Germany in the late 1990s.

The overhaul has been spearheaded by Mike Duke, the company’s vice chairman, who took over as head of international operations in September 2005.

“As I came in, and maybe with a new perspective, I was aggressive in addressing certain opportunities that needed to be addressed,” he said in an interview at Wal-Mart’s headquarters.

Shortly after taking over the job, Mr Duke acted on the results of a global review of the company’s country units to pull out of South Korea and Germany, the first significant global retreat by the retailer since it first went overseas, to Mexico, in the early 1990s.

“Looking at our businesses as a portfolio caused me to really look at businesses where we could not produce shareholder return, and look at those objectively and say: ‘If we can’t reach the returns for our shareholders and we are not serving our customers in a unique way, we should exit that country’.”

The focus on shareholder return has driven continued investment in high-growth markets – including Latin America, Canada and China. But Wal-Mart is also continuing its efforts to turn round Japan’s Seiyu, moving to take full control of the retailer last year, in spite of a net loss of Y20.9bn ($193m) in 2007.

Mr Duke insists that Wal-Mart is committed to Japan, which Wal-Mart executives compare with the early struggles faced by its now profitable business in Mexico. He says Japan is one of the countries in which Wal-Mart may not be “winning today” but has “a clear path to victory”.

The retailer argues that taking full control of the Japanese company has made it easier to institute changes that have included creating a more streamlined distribution system and increasing Seiyu’s focus on low prices.

The company is also taking the multi-format strategy that has worked well in Brazil and Mexico to other countries. In India, it will be involved with Bharti in stores ranging from small supermarkets to hypermarkets and wholesale outlets.

Wal-Mart has also reshaped its line-up of international executives. José Angel Gallegos Turrubiates, formerly a senior executive of its Mexican unit, was recently named head of int­ernational human resources, with responsibility for talent development.

Vicente Trius, the former head of Wal-Mart’s successful Brazilian stores, was recently appointed to a new post in Hong Kong overseeing regional operations in China, Japan and India.

Executives say that the move should create more space for Mr Duke to focus on strategy, while Mr Trius has indicated that he will also be exploring new opportunities for expansion in the region.

Wal-Mart has moved David Cheesewright from Asda in the UK to head its Canada stores, bringing his experience of Asda’s grocery business to support an expansion of food sales.

“Moving talented executives around [is important] because each move brings a new perspective and some different ideas,” Mr Duke says.

The retailer is increasingly confident about bringing in top international talent from outside its own ranks.

In China, it has replaced an older Wal-Mart executive with Ed Chan, from Hong Kong, who was poached from Dairy Farm International, a pan-Asian food and drug retailer. In India, the business is headed by Raj Jain, who built his career at Hindustan Lever. And to head its push into Russia and neighbouring countries, it has appointed Stephan Fanderl, former head of the hypermarket and supermarket business of Germany’s Rewe Group.

Posted by Vasudha Desikan on Wednesday, June 18, 2008