Global expansion targets Canada, Latin America - Wal-Mart Stores Inc - Wal-Mart

Discount Store News, June 7, 1993

Wal-Mart has a simple goal for its power merchandising endeavors: do it globally.

And the discounter has been doing just that, relentlessly, but quietly, expanding its business internationally.

Wal-Mart's global moves are part of the company's ongoing transformation from America's premier retailer to international marketer and trading house, sourcing, distributing, selling and trading merchandise worldwide.

The company's core merchandising concepts of everyday low prices, a heavy focus on basic and staple goods and partnership relations with suppliers to maintain a strong in-stock position are seen as having universal appeal.

Wal-Mart's latest step having internationalization implications was its receiving approval last month to establish a foreign trade zone on a 145.06 acre site in Buckeye, Ariz., where it has already built and begun to operate a $20 million, 1.5 million-sq.-ft. distribution center that can be expanded to 2 million sq. ft.

In its application to the U.S. Department of Commerce's Foreign Trade Zone Board, the company said the zone and DC "will better enable Wal-Mart to become a global discount retailer." Wal-Mart used similar language numerous times in its application, which was filed on its behalf 11 months ago by the City of Phoenix. The city is the Foreign Trade Zone No. 75 grantee of Wal-Mart's subzone 30 miles away in Buckeye.

The company said the zone would enable it to import components and produce finished goods at less cost than buying completed items overseas. At the same time Wal-Mart and American manufacturers could export merchandise less expensively from the zone.

Wal-Mart downplayed its foreign trade zone application and subsequent approval, as well as other aspects of its international expansion plans. Company executives, however, have told security analysts that Mexico, other Latin American nations and Canada are priority expansion targets. Expansion to Europe is likely by 1998, one consultant opined.

The foreign trade zone is one element in a broader infrastructure that will support Wal-Mart's international operation. Another is the proposal to build a regional airport in Northwest Arkansas that would enable Wal-Mart and other area businesses like Tyson Foods to more efficiently pursue overseas trade. Wal-Mart isn't directly involved with the Northwest Arkansas Regional Airport Authority that has fowarded its airport master plan to the Federal Aviation Administration for review.

The internationalization of Wal-Mart started to take shape 23 months ago when it formed a $20 million joint venture with Cifra, S.A. de C.V. to open Club Aurrera stores in Mexico modeled on the discounter's Sam's Club. The initial club was unveiled at the end of 1991 and the three units in operation at the end of 1992 accounted for 6% of Cifra's $3.7 billion in sales, or $221 million, the Mexican retailer reported. Six additional units are due this year.

A year ago, the initial agreement was expanded to a joint venture partnership encompassing the opening of all future Cifra stores in Mexico. The agreement will extend to any Wal-Mart businesses in Mexico, including Wal-Mart Super-centers - two are planned - and wholesaling add distribution operations of the discounter's McLane subsidiary.

The expanded agreement also included launching an import-export company, Comercialization Mexico-Americana, to facilitate trade between the two countries, both for the retailers' own businesses and for other companies.

Separately, Sam's Club has an export division. Its activities include arranging truck-load and container shipments.

McLane is a player in Wal-Mart's international endeavors beyond its involvement in the discounter's joint venture with Cifra. McLane has been operating in Spain for over two years through a joint venture with a local company, and a year ago it acquired a distribution business in the United Kingdom.

The two overseas McLane businesses are seen as providing Wal-Mart with insights on European retailing and expansion opportunities when the discounter decides to venture across the Atlantic Ocean.

Wal-Mart's next international expansion is likely to take place closer to home - in Canada. Trade observers expect Wal-Mart to enter the Canadian market within the next 12 to 18 months, most likely in the province of Ontario. The company has set the stage for this through the opening of discount stores along the U. S.-Canadian border in such states as York, Mechigan and Minnesota where Canadian consumers can, and do, shop Wal-Marts in cities like Buffalo and Niagara Falls, N.Y., and Port Huron, Mich.

Wal-Mart's international expansion doesn't just benefit the discounter. Other specialized retailing companies can also float alongside Wal-Mart as the discounter expands globally. One example is American Studios, which provides portrait photography services in Wal-Mart's U.S. stores. It will also operate studios in the discounter's joint venture stores in Mexico.