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Wal-Mart International shoring up BRIC foundation


BENTONVILLE, ARK. —Wal-Mart’s ongoing transformation as a global company is poised to accelerate in the coming years as recent international actions suggest the company will eventually join other multinational corporations who generate more than half their sales outside the United States.

Already, Wal-Mart’s $90.6 billion International division accounts for 24.2% of total company sales of $374.5 billion, compared to a decade ago when international sales represented 5% of total company sales of $112 billion. There were more than 3,100 stores in 13 countries at the end of last year.

“Going forward, you will see International growing at a faster pace than our U.S. operations and Sam’s Club,” said Charles Holley, Wal-Mart’s evp of finance and treasurer, at an investor meeting held in Brazil earlier this month. To ensure that happens, Wal-Mart is focused on accelerating growth in markets such as Brazil, while entering new markets such as Russia and India, and continuing its expansion in China.

These so called “BRIC” nations have emerged as a core element of Wal-Mart’s long-term international growth strategy, with the most recent development involving Russia. Earlier this month, Wal-Mart made its intentions known regarding Russia and Eastern Europe when it named Dr. Stephan Fanderl to serve as president of Wal-Mart emerging markets, East. In that capacity, Fanderl is charged with exploring the retailer’s entry into the region, which would appear to be an eventuality at this point. Less clear is how Wal-Mart will go about serving customers, the types of formats it will use and when they will open.

Most likely, Wal-Mart will team up with a joint venture partner, and Fanderl should prove helpful in that regard, given his background. He previously served as a member of the management board of Cologne, Germany-based Rewe, one of the world’s largest retailers with annual sales of $71 billion. In that capacity, he was credited with turning the supermarkets of Rewe group in Eastern Europe into one of the company’s most successful business units and relaunching the company’s operations in Germany under the Rewe brand.

“He has outstanding managerial skills and has successfully developed Rewe’s business in Germany and eight Eastern European countries,” said Wal-Mart vice chairman Mike Duke of Fanderl when his appointment was announced.

While it is likely to be several years before Wal-Mart has any store in the former Soviet bloc countries, it won’t have to wait much longer in India. After forming a joint venture with Bharti Enterprises in 2006, the group’s first store is slated to open later this year in a cash-and-carry format similar to the no-frills type stores Wal-Mart operates in Mexico know as Bodega Aurrera.

A more established retail business exists in China, where Wal-Mart operates more than 200 stores following an investment last year with Bounteous Co. Ltd, which at the time operated 101 stores under the Trust-Mart banner. The deal has worked well for the company, based on recent financial reports and company comments indicating same-store sales have increased in the double digits for several months as average ticket size and customer traffic have increased.

Despite growth in China and moves in Russia and India, Brazil is where the action is right now, which explains why Wal-Mart hosted a meeting there for investors. The company plans to open 36 new stores in Brazil this year, almost double the number that opened last year, remodel 45 others and open a new distribution center.

Next year, president and ceo Hector Nunez said growth will accelerate further—and with good reason. Brazil has emerged as one of the world’s hottest economies and a market where Wal-Mart has recorded double-digit same-store sales growth for seven years. Going forward, the company sees tremendous potential to serve underserved customers with a format called Todo Dia, even though the format accounts for only 21 of Wal-Mart Brazil’s more than 300 stores. “Todo Dia is an incredibly big opportunity for us in Brazil and we will have explosive growth,” Nunez said.

Todo Dia is a no-frills format similar to Wal-Mart’s Pali stores in Central America, Changomas in Argentina and Mexico’s Bodegas. The small-format store offers only 3,800 SKUs and the emphasis is on providing opening-price-point customers access and affordability.

It is a strategy that has worked well for Wal-Mart in other countries, most notably Mexico, where record expansion is also under way in 2008. This year in Mexico, a country similar to Brazil in that Wal-Mart operates multiple formats, plans call for the addition of 139 Bodega Aurerra stores, 17 supercenters, six Superamas, eight Suburbias, five Sam’s Clubs and 30 new restaurants. Among the new units is a small version of Bodega Aurrera called Mi Bodega Aurrera that was introduced several years ago as a means to target smaller communities.

Now, an even smaller version called Mi Bodega Aurrera Express has been introduced that is suitable for all but the smallest of cities in Mexico. Of the total 139 Bodega Aurerra formats planned for 2008, 60 will be the Mi Bodgega Express format. Wal-Mart ended last year with 313 Bodega Aurrera stores, 163 supercenters, 83 Sam’s Clubs, 64 Superama food stores, 76 Suburbia department stores and 355 restaurants for a total of 1,027 units.

How soon Wal-Mart’s international operations comprise more than half the company’s total sales is subject to a lot of variables, including future acquisitions and organic growth on a country-by-country basis. In addition, the decelerating pace of growth in the United States as Wal-Mart reduces supercenter expansion will also play a role. Either way, the trend line is clear, even if the time frame in which it occurs isn’t.

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