Wal-Mart bullish on South America - Wal-Mart Stores Inc. expects surge in sales from outlets in Argentina, Brazil

Discount Store News, Oct 21, 1996 by Pete Hisey

BUENOS AIRES, ARGENTINA -- An advance cadre of Wal-Mart merchandisers got off a plane in Buenos Aires two years ago knowing no one. Twenty-four months later, the third series of Sam's Club and Wal-Mart Supercenter installations is set to debut, the two existing supercenters are grossing close to $200 million each on an annualized basis and Wal-Mart is a force to be reckoned with in this country of 20 million.

According to retail consultant Peter Monash, Wal-Mart's senior vp, finance Jay Fitzsimmons told analysts at the just-concluded annual analysts' meeting in Bentonville that operations in South America are "ahead of plan." Where the company had first looked at operating six to eight stores in a market, with three years necessary to break even, it appears that both Argentina and Brazil will become profitable in only two years.

The Argentina openings Dec. 5 precede six more supercenter openings in 1997, with Wal-Mart looking to open as many as 40 supercenters nationwide over the next few years, with perhaps 10 to 12 Sam's Clubs as well.

A Wal-Mart press conference scheduled for Oct. 24 in Sao Paulo will likely announce that 10 stores will open in Brazil in 1997.

If results continue as expected, that could mean as much as $8 billion added to Wal-Mart's sales from this single market. (Most of the country's population resides in Buenos Aires, although there are several cities with around 200,000 people that would make good markets for either concept).

Steve Furner, coo, Argentina, told DSN that Wal-Mart sees the country as relatively understored, and added that a developing middle class is unleashing pent-up demand for the sort of consumer goods Wal-Mart can supply.

Not that Argentina has been a pushover for Wal-Mart. The company is learning, sometimes painfully, to compete as the new kid on the block. During the first few months of operation last fall, several vendors, including U.S.-based Lever Bros. and Procter & Gamble, either refused to ship to Wal-Mart or insisted that the chain post prices at least a penny higher than at its main competitor, French hypermarket operator Carrefour.

Carrefour has run stores in Argentina for over 15 years. With 14 stores in operation, including one grossing well over $200 million a year, the chain has enormous financial clout. However, according to gmm Dan Owens "those problems are well in the past."

The velocity in Argentina and Brazil has been so great that it led to an innovation that may find its way into U.S. supercenters. The entire back wall has become a back-fed center for consumables, from milk to paper towels to feminine hygiene products. At the bottom, wheeled carts with open fronts stock larger products and the fastest sellers (like two-liter bottled soft drinks) while gravity-fed slots above merchandise smaller items. "This way, the merchandise never even goes onto the floor," Owen noted.

The Argentina store is the largest in Wal-Mart's supercenter collection, about 258,000 sq. ft. However, most of that extra space has been given back to the customer in the form of extra-wide aisles (both horizontal and vertical), jumbo-sized endcaps and extra aisles, like one that bisects the apparel department. "During the weekend, it's still bumper to bumper in here," Owens noted. "Without the additional space, no one would be able to move at all."

One notable difference in the Argentine supercenters (and Sam's Clubs as well) is the liberal use of skylights. On Sunny days, it's often possible to turn off interior lights completely.

Indications are that, for now, Wal-Mart will concentrate on Argentina and Brazil for expansion. But over the next few years, it will look to expand into other South American nations. Right now, Venezuela and Colombia look like the most likely targets. Chile, the former front-runner, has slipped somewhat in Wal-Mart's estimation as a major market for expansion.