A rocky but rewarding opportunity - Wal-Mart operations in South Korea

Discount Store News, Oct, 1999

South Korea is an enticing market for Wal-Mart International for a number of reasons. South Korea is the world's 11th Largest economy, with a population of 47 million people. It is also one of the planet's most densely populated countries, with an estimated 1,212 people per square mile.

Wal-Mart International moved into Korea in July 1998 with the acquisition of four stores and six undeveloped sites from the Korean club store retailer Makro.

At the time Wal-Mart purchased the Makro stores, the chain employed about 850 people and reported 1997 annual sales of about $160 million. The Makro stores and associated real estate were purchased from Korean businessman H.S. Chang, who retained a minority interest in the venture.

Three of the stores are located near Seoul in Inchon, Ilsan, and Pundang. Another store is located in the central city of Taejon. A fifth Korean Wal-Mart superstore was opened in July 1999 in the city of Kangnam and is one of retailer's more unique locations. The Kangnam store is located on two subterranean floors of a 10-level shopping center that includes five below-ground levels of shopping.

Wal-Mart's expansion into Korea has been somewhat cautious compared to some other U.S.-based retailers. Competitors such as warehouse club retailer Costco entered the Korean market approximately four years before Wal-Mart.

In fact, Wal-Mart studied the Korean market for nearly four years before acquiring the Makro stores.

"Wal-Mart is committed to the Korean market for the long-term," Joe Hatfield, president of Wal-Mart Asia, said in announcing the opening of the Kangnam store. Hatfield also said that it was considering introducing the Sam's Club format to Korea in addition to its supercenters.

However, Wal-Mart's entry into Korea wasn't without some rough spots.

Wal-Mart was initially unable to use its trade name in Korea and was forced to wage a lengthy legal battle, which the retailer ultimately won. By the time the Kangnam store opened in July 1999, Wal-Mart Korea officials announced that they were finally changing the store's signs and associate's badges to include the Wal-Mart trade name.

"Throughout the world, the Wal-Mart name symbolized every day low prices, customer satisfaction and customer value," said Rene Mang, country president for Wal-Mart Korea. "With the opening of the Kangnam store and the usage of the Wal-Mart Supercenter trade name, we are confident that we will continue to provide the highest level of customer service and quality merchandise."

Wal-Mart began converting the Makro stores to the supercenter format early in 1999, doing away with the store's membership format and giving the chain's former members refunds on their dues. During 1999, Wal-Mart remodeled the former Makro stores and converted the stores' information systems.

Wal-Mart offered Makro's customers a choice between a cash refund or a merchandise voucher that was worth 25% more than the cash refund.

The recent economic downturn in Asia may have actually helped Wal-Mart's efforts to get into the Korean market by lowering the cost of entry.

The Korean acquisition cost an estimated $179 million and will enable Wal-Mart to attain a critical mass of stores within the country in a relatively short period of time.

Any expansion on the Korean peninsula by Wal-Mart or any other international businesses depends on the economic and political stability of area.

Tensions between North Korea and South Korea have remained high since an armistice was reached in June 1953 that ended hostilities in the Korean War. The increasingly unstable government of North Korea has the potential to cause trouble and to stall expansion until the political climate stabilizes.

KOREA

YEAR WAL-MART ENTERED: 1998

STORE COUNT:

DISTANCE FROM SEOUL, SOUTH KOREA TO BENTONVILLE:

5 supercenters

6,701 MILES/10,785 KM.