Another adaptation of the rural strategy - Wal-Mart operations in Argentina

Discount Store News, Oct, 1999

Wal-Mart has built a firm base of stores in Argentina and in the process created a name recognition that should help open other markets in South America. Argentina is the world's 8th largest nation in terms of land mass and it has a population of approximately 37 million people.

Wal-Mart planted its flag in Argentina's retail market in November 1995, building its first supercenter in the city of Avellanda.

Carrefour is Wal-Mart's key competitor in Argentina, followed by Disco, Coto, Norte and Tia. Collectively these chains account for 80% of Argentina's retail sales, according to a report on Wal-Mart's international operations by the securities firm Lehman Brothers.

With 21 stores and 15 years in the Argentine market, Carrefour remains a formidable competitor to Wal-Mart. Wal-Mart has gained ground quickly, opening 10 stores and a distribution center in a little more than four years. However, Carrefour still holds the geographic advantage in several key locations in Buenos Aries and other cities.

But analysts think that Wal-Mart has reached a level of critical mass in Argentina that should help propel its EDLP strategy and generate profits. After succeeding in some big-city markets in and around Buenos Aires, Wal-Mart is moving into "rural" areas throughout South America, specifically cities with populations of about 500,000.

Wal-Mart continues to commit resources to its operations in Argentina. A recent management change at Wal-Mart in Argentina brought an experienced retail executive from the Northern Hemisphere to the Southern Hemisphere. In May 1999, Don Bland was named president and ceo of Wal-Mart Argentina and Horacio Achaval was named coo.

Similar to circumstances in Brazil, Wal-Mart's performance overall has been hampered by Argentina's economy, which has been performing sluggishly with declining industrial production and deflating consumer prices.

Argentina also is a good prospective market for Wal-Mart because it is one of the most affluent countries in South America with a per capita income of about $20,000. Brazil's decision to uncouple its currency, the Real, from the dollar caused a 30% drop in the Real's value and harmed the economies of other Latin American nations including Argentina. In the wake of Real devaluation in Brazil, the securities firm Merrill Lynch cut Argentina's economic outlook for 1999 from 2% growth to a 2% decline for the year.

Overall, Argentina's long term economic future looks bright as the country moves to privatize many industries and emerge from years of political turmoil. But Lehman Brother predicts that Argentina's retail sales will grow steadily for the next decade.

Argentina's overall retail sales market is expected to grow from $76 million in 1998 to $102.2 million by 2008.

Wal-Mart is expected to capture 3% of the Argentine retail market by 2008 with estimated sales of $3.1 billion.

ARGENTINA

YEAR WAL-MART ENTERED: 1995

STORE COUNT:

10 supercenters

DISTANCE FROM BUENOS AIRES, ARGENTINA TO BENTONVILLE:

5,317 MILES/8,618 KM