Wal-Mart begins aggressive move into Brazil

Discount Store News, May 15, 1995

SAO PAULO, BRAZIL -- Wal-Mart debuted its first Brazilian unit, a Sam's Club, here in the world's second-largest city with a metro population of 15.2 million. The Bentonville, Ark.-based discounter plans to open a supercenter here in September or early October.

Wal-Mart will open at least four Sam's Clubs and two supercenters over the next year, with several more planned for 1996. The company also will invade Argentina in early to mid-1996, with two supercenters and four Sam's Club units planned for the first wave.

To Wal-Mart, the Latin American market is a vital component of its long-term growth strategies. By the end of this year, it will probably operate in all 50 states (holdout Vermont appears poised to approve a unit in the northern city of St. Albans). Europe, at least for now, is too tough a market for Wal-Mart to enter, leaving Asia and South America as viable growth markets for the nation's No. 1 discount retailer.

Bob Martin, president of Wal-Mart's International division, recently spoke at a "Retailing Smarter" seminar sponsored by the University of Florida's Center for Retailing Education and Research, and said that "there are limited opportunities for growth domestically, and competitive pressures here make the international market look better and better."

He noted at the same time that while the risks are higher and mistakes easier to make, "focus and execution" can keep costs low enough to make up for higher overhead.

Despite its high population, Brazil has a GNP that's a fraction of that of the United States (only about $500 billion) and a per capita income that compares with that of Mexico. However, as Martin noted, Wal-Mart's low-cost systems will make it particularly effective in markets where people don't have much money.

The company still runs the rrsk that became an unpleasant reality in Mexico, where the crash of the peso made many of its goods all but unaffordable to even well-off Mexicans. Brazil and Argentina have both be under enormous inflationary pressure, and while both have undertaken stringent anti-inflationary programs, which include price freezes, wage cuts, a new currency (the Real, in Brazil) and higher taxation, the net result has been a more stable environment at the cost of a precipitous decline in discretionary income.

To Wal-Mart, though, the stability is probably a lot more important than disposable income. According to the newsletter Market: Latin America, Brazilians pay for nearly everything, even fast food meals, by check, as accounts are adjusted on a daily basis to allow for overnight inflation. With stability growing, cash will probably come into play more often. Credit cards are virtually unknown in Brazil, and when used, merchants tack on up to 35% over the cash price to protect against inflation.

Another stabilizing factor is the decline in birth rates, which has slowed considerably over the past decade to an estimated 1% growth per year. As Market: Latin America pointed out, that will allow the Brazilian infrastructure to catch up with the growth of the '60s and '70s.

With a combined total population of about 230 million, the new economic bloc called Mercosur (led by Argentina and Brazil) has a potential market that approaches that of the United States, with Brazil and Argentina accounting for the lion's share of the population. Since retailing in the region remains in its infancy (in Brazil, only Carrefour and Wal-Mart's partner, Lojas Americanas, can be considered modern mass retailers), Wal-Mart could quickly dominate the market area even more convincingly than it does in the United States.