Wal-Mart zones in on foreign trade; Arizona facility key to becoming global retailer - distribution center and foreign trade zone, Buckeye, Arizona

Discount Store News, April 19, 1993 by Arthur Markowitz

Arizona Facility Key to Becoming Global Retailer

BENTONVILLE, Ark. -- Wal-Mart is poised to make a major leap forward in its drive to become a global marketer: it's set to become the first retailer to have its own foreign trade zone.

The discounter within the next few weeks will likely receive approval on its application to establish a foreign trade zone in Buckeye, Ariz., where it has already built a massive distribution center off Intestate 10. The DC provides direct connections to two major shipping centers, the Port of Long Beach in California and Sky Harbor International Airport in Phoenix.

Wal-Mart said the zone and the DC, which has received a certificate of occupancy but wasn't schedule to become operational until next month, "will better enable Wal-Mart to become a global discount retailer."

The company plans to use the zone for imports, storage and distribution of imported and domestic-sourced merchandise and processing and packagin of goods for its own use and for export. It also said it was "developing a new Export Division and was analyzingg expansion of its discount retail operations into foreign countries including Canada, Central America and Europe."

The zone would provide vast, but unstated, savings to Wal-Mart by enabling the discounter to delay paying duties on imports until they are moved into its stores--a float that can be worth millions to the chain--avoid dutiess on exports and reduce the duties on goods processed from imported components.

The zone would also allow Wal-Mart to: * Better monitor foreign sources of supply; * Avoid duties on rejected imports; * Assertively aid its Buy American program by encouraging overseas manufacturers to locate plants near its Buck-eye DC to sell to the discounter and be in position to supply others in the vast market created by the pending North American Free Trade Agreement.

Wal-Mart said it needed the zone--which was for its own exclusive use--and potential counterparts in other countries to fulfill its "ultimate goal of truly global distribution and sales." Similar language was used numerous times in Wal-Mart's application for the zone formally filed July 1, 1992, with the U.S. Department of Commerce Foreign-Trade Zones Board. The discounters had asked that approval be granted before Feb. 1, so it would have time to "activate" the zone and start to receive merchandise.

A Commerce Department spokesman said, "it usually takes about a year to reach a decision [on an application] but this one will be done ahead of that schedule."

A foreign trade zone board source explained that lack of a public benefit is the key reason for rejecting an application. Wal-Mart's 2.5-inch thick filing cited the public benefits of a Wal-Mart zone to Buckeye and the surrounding area and the chain's own beneficial impact on communities where it operates. The latter assertion was buttressed by about 200 letters from chambers of commerce praising the discounter's local business and community activities. These letters were in response to Wal-Mart's own survey to learn how the chain is viewed in local communities.

In Buckeye, Wal-Mart has completed building a $20 million, 1.5 million-sq.-ft. distribution center--expandable to over 2 million sq. ft.--on a 145.06-acre site four miles southwest of Interstate 10 at exit 114. It also completed hiring its initial crew to staff the DC, which was described as a "storage facility" when it was first announced a year ago.

Wal-Mart has declined to comment on the zone or its global trading plans, both of which are discussed in the application. In its application, Wal-Mart also asked for authority to process components of two specific products, cassette deck stereos and cameras. It would import components duty free and process them into finished items that have a lower duty than the specific parts. The application noted that the stereo duty rate was 3.7%, while the components' ranged from 4.4% to 6%; cameras had a 3% duty rate, whole parts ranged from 3.7% to 20%.

Bob Wojton, Phoenix' Business Development Administrator, said the Buckeye DC is within a one-day truck trip to all major markets in the Southwest. He added that Wal-Mart rejected Long Beach, Calif., because the retailers said it didn't like the business climate in California and the port city wasn't within one day transshipment run to a number of other Southwest markets.

Wal-Mart's move has stirred the interest of other retailers. "We have had discussions with different retailers but I'm not at liberty to say which one and so far nothing concrete has developed," he said.

The closest Wal-Mart came to quantifying any savings from its proposed zone was the general statement that "overall, foreign trade zone savings from cash flow, scrap and waste, and exports is estimated at $500,000 per year."

The discounter rejected the idea of using a customs bonded warehouse as these facilities can only hold foreign products.