Wal-Mart International reshapes the world retailing order

Discount Store News, Jan 20, 1997 by James Mammarella, Pete Hisey

Five months ago, what shoppers in Shenzhen, China, wanted and received when they shopped in large modern stores changed dramatically. The opening of a Wal-Mart Supercenter and a Sam's Club in August set the new standard for high-volume, high-value retailing in what the locals call "New City," the center of the most robust of China's special economic development zones.

Some elements of the booming capitalism in Shenzhen will never roll out across the rest of China, but the enthusiasm for shopping the Wal-Mart way is unmistakable. It will have a lasting impact on how goods are sold in what is likely to become the world's largest economy.

Similar stories are unfolding across the developing world. From the relatively sophisticated consumer societies of Argentina and Brazil to the gleaming new malls built for Indonesia's just-emerging middle class, throngs of shoppers harvest incredible volumes of product every week.

"We changed the customer expectation of shopping forever," Wal-Mart International president and ceo Bob Martin told DSN.

In one of the surest signs of success, competitors have raced to adopt various Wal-Mart logistics, merchandising and pricing concepts, as detailed in this exclusive DSN report. For example, Derk Doijer, chairman and ceo of Makro Atacadista in Brazil, said that the company dropped its margins in food to improve competitiveness in the third quarter of fiscal 1997. In both China and Indonesia, leading local department store retailers unveiled new prototype stores in 1996 that borrowed heavily from Wal-Mart's look and feel, from fixtures and signs to security measures.

Wal-Mart will radically affect the business operations of competitors. Its China units, for instance, received a special exemption from item pricing laws after demonstrating how effectively bar coding and checkout scanning work. Manufacturers and distributors in Indonesia will have to use bar coding as Wal-Mart's rivals begin to demand the same inventory and cost control benefits that their American competitor enjoys.

After several years of sometimes painful, real-world testing in Mexico, South America and Hong Kong, Wal-Mart International has knocked out a lot of the bugs in its system. The division is poised to begin generating real and increasing returns for the company. With 1995 sales of $3.7 billion, the international division posted an operating loss of $16 million, a virtual break-even. Results for 1996 will be released at the end of February.

Wal-Mart is winning over consumers abroad by applying its proven policies and procedures to extremely divergent peoples. Even with the changes, a Wal-Mart store is instantly recognizable anywhere in the world. Joe Hatfield, president and coo of Wal-Mart Asia, said "providing clean, bright stores where [consumers] can find value" is at the deceptively simple core of the retailer's appeal to customers accustomed to different standards.

The Wal-Mart International Division, formed in '94, is, a polyglot unit. Business is conducted through joint ventures in China, Mexico and Brazil, by a hands-on licensing contract to one of the largest corporate groups in Indonesia, and independently in Argentina by Wal-Mart. In Canada, the chain leapt onto the map in '95 with 122 stores bought from Woolworth. International operates the Puerto Rico units for cultural and logistics reasons.

While committed to plowing hundreds of millions of dollars more into new markets, the division has not convinced everyone of its wisdom. As Wal-Mart's stock price plateaued over the past three years, some analysts said that it had faltered in its international expansion and had for once encountered market forces and cultural currents beyond its ken.

But the continuing expansion speaks of sound business sense. While Wal-Mart keeps adding or converting 100 stores per year in the United States, most prime areas are already being served. Also, as its saturates the United States and competitors improve, profit margins are increasingly pressured - typical conditions of a mature market.

However, in the markets where most of the world's nearly 6 billion people live, the retailing landscape offers greater opportunity to the bold. Compared to the U.S. scene, logistics and distribution systems are poor, foreign chains enjoy favorable relationships with suppliers and governments, and consumers and potential employees may be resistant to American ways and means.

The 21st century will reward those retailers that get on the ground now and learn how to grow with these burgeoning economies. Each of the countries in the report is understored in comparison to its citizens' growing purchasing power.

Criticism of Wal-Mart International reached a peak last year. Mexico's economic crisis had taken the wind out of Wal-Mart's sales there during 1995. The company ended a short-lived joint venture experiment operating mini warehouse clubs in expensive Hong Kong. Meanwhile, rumors and incomplete press reports from Argentina and Brazil implied that Wal-Mart had met the first major failure in its history, that it was losing enormous sums of money against fierce resistance by established global retailers Makro and Carrefour.