Wal-Mart Mexican connections pay off; logistics expertise key to joint venture with Dillard's

Discount Store News, Nov 7, 1994 by Pete Hisey

TUSCON, ARIZ. -- Despite a few minor setbacks, Wal-Mart's Mexican business continues to explode. The retailer announced plans to build a 160,000-sq.-ft. distribution center to serve its western Mexico Sam's Clubs and supercenters, which will join an existing Laredo, Texas, DC serving eastern Mexico.

Wal-Mart also announced that it will form a joint venture with Dillard Department Stores and Cifra to build several Dillards in Mexico. Dillard said that it contracted with its fellow Arkansas retailer because of Wal-Mart's experience in Mexico and the systems it already has in place.

Last summer, Wal-Mart's Mexico City supercenter was forced to close for a day because Mexican officials felt that the store wasn't selling enough Mexican-made goods. The problem was quickly resolved; however, and spokesman Don Shinkle attributed the closing to a "misunderstanding." No other details were available.

Of the new distribution center--one of three Wal-Mart will open next year--Wal-Mart representative Betsy Reithemeyer told the Arizona Daily Star that Tucson was chosen because of "the whole economy of the area. It is a good focal point with high-ways and traffic to get people in and out" of Mexico.

The new DC will employ about 300, and is a direct result of the explosion of Wal-Mart stores in Mexico, which now include four supercenters and 19 Sam's Clubs, both run as joint ventures with Cifra, its Mexican joint venture partner.

(Wal-Mart's other two DCs, will be dedicated to apparel and food, respectively, according to a speech made by vicechairman and coo Don Soderquist at the recently concluded Montgomery Securities conference in San Francisco. Soderquist also said that Wal-Mart will open between 10 and 12 Sam's Clubs and between 10 and 12 supercenters next year in Mexico.)

The Bentonville, Ark.-based retailer has been expanding its distribution system rapidly in the past two years, adding DCs for its traditional discount stores as well as its rapidly expanding supercenters.

The company has also applied for permission to establish the construction of a second foreign-trade zone, this one located in Savannah, Ga., joining a similar zone in Phoenix, Ariz. This new facility will feature 1.5 million sq. ft. on a 163-acre site. It will supply stores in the United States, Mexico, Canada and potentially Central America and Europe, according to the application Wal-Mart filed with the Foreign Trade Board of the U.S. Department of Commerce.

The Dillard deal will give the Wal-Mart/Cifra combination a 50% stake in the business, with Dillard receiving the other half of the profits. In effect, Wal-Mart will now operate in every major retail classification apart from convenience stores in the Mexican marketplace. Up to 20 Dillard stores are possible; Dillard chief financial officer James Freeman said that five sites are planned, with a dozen more under consideration.

As part of the deal, The New York Times reported that Dillard's will supply Cifra with apparel-buying expertise, inventory control and tracking systems for its Suburbia apparel specialty chain, and will receive in turn an injection of trained store and regional managers from Cifra to hire and train new employees.

"Dillard has a tradition of bringing a full line of high quality merchandise to customers, and we look forward to working with Wal-Mart and Cifra to help us continue this tradition in the Mexican market," said Dillard chairman and ceo William Dillard.

Left unsaid is the impact of the agreement on the American marketplace, where Wal-Mart's one major weakness is its new partner's strength--superior quality, fashion-forward, value-priced apparel for the entire family. A $5.1 billion business, Dillard operates 231 stores in the southern half of the United States and has been a superstar in the department store industry, in large part due to its stringent value pricing, high service levels and state-of-the-art technology.