Walmart Expansion
Wal-Marts miles of aisles have conquered the U.S. and theyre spreading across Europe and Asia. Is bigger always better?
The aisles are clean, the store is brightly lit and associates in red polo shirts provide friendly service to the customers, who flock there for the low prices and the wide range of products offered. Throughout the store the image of a kindly old man appears in posters and photographs. His slogans and philosophy have been internalized by all employees, and they can tell you the story of his great march forward from humble rural roots to become a great leader.

And by the way, would you like us to skin that frog for you?
Welcome to Wal-Mart in China, where the late Sam Walton has a new image: the Mao of retailing. And where, as in Arkansas, stocking exactly the right merchandise is still paramount. So the store in Shenzhen, just north of Hong Kong, is crowded with tanks of crabs, fish, frogs and shrimp, which can be taken home wiggling or be expertly gutted and cleaned on the spot.

Wal-Marts push into China–and Brazil and Britain and Germany and deeper into California and New York–offers a hint of why the worlds largest retailer seems unfazed by this stinker of a holiday shopping season. Wal-Marts 3% like-for-like sales increase in the fourth quarter was at the low end of its estimate. But Wal-Mart did better than most and its total sales this year will grow 10%, to about $240 billion worldwide in the fiscal year that ends Jan. 31.

No company on the planet is bigger. And Wal-Mart is mounting an audacious expansion that could double its sales within just five years. Wal-Mart has 1,300 Supercenters, many of them converted from standard discount stores, offering everything from hardware to groceries and drugs. In some areas, it is placing these 16,700-sq-m monsters as close as 8 km apart. And in the spaces between, its tormenting local grocery and convenience stores with Neighborhood Markets (call em Small-Marts). “Its surprising how much room we have for growth,” says Robson Walton, Sams son and the companys non-executive chairman. As it grows, Wal-Mart is adding categories such as PCs, ceiling fans, more fashionable clothing and gasoline. And last week the company announced it will begin offering the basic financial services already available in some stores–check cashing, money orders–to all its U.S. customers, many of whom dont have a bank account. It wants to be in any category where it can lower prices. “Their goal is to have a 30% share of every major business they are in and they are pretty serious about it,” says Linda Kristiansen, a retail analyst for UBS Warburg Equity Research.

They are also serious about global expansion. Wal-Mart wants to be in the worlds top 20 national markets, which account for 60% of all retail activity. “Im not trying to be flippant,” adds Lee Scott, 52, Wal-Marts third CEO. “But simply put, our long-term strategy is to be where were not.” Wal-Mart is now the leading retailer in Mexico. The company recently landed in Japan, buying 34% of Seiyu, a leading retailer there, adding market No. 10. That leaves most of Europe, not to mention large parts of Asia and South America. Wal-Mart made a dream debut in the U.K. with the $10.7 billion acquisition of ASDA in mid-1999, where it discovered a company almost perfectly in tune with its Every Day Low Price (EDLP) culture. But expansion in Germany has been less than stellar, delaying, perhaps, Wal-Marts move into the rest of Europe.

Wal-Mart reached Europe in 1998 when it bought Germanys Wertkauf. A year later it added Interspar, and then mangled the merger in almost every way possible. “We could write a training manual about our experiences in Germany,” Scott says. “We really did more things wrong than right.”

German consumers love low grocery prices, which would make them the perfect clientele for Wal-Mart, but they, too, experienced culture shock when confronted by Southern hospitality. Germans found Wal-Marts famous door greeters appalling, and they dont want to be approached by ever-helpful clerks in the stores–its considered an intrusion. The company says it is narrowing losses and hitting targets, but analysts say Wal-Mart isnt going anywhere soon. “I dont see any light at the end of the tunnel,” says Jürgen Elfers, a retail analyst at Commerzbank AG in Frankfurt.

In Germany, Wal-Mart discovered a surprising weakness: it couldnt export one of its biggest advantages–high-volume logistical know-how. There was trouble synchronizing warehouse data systems, and the Americans say they were surprised by the lack of sophistication of German distribution. “Its a very immature market in Germany. We havent been able to use our tools,” says John Menzer, head of the companys international division. It was a humbling lesson for Bentonville.

To help offset losing the advantage of logistics abroad, and to increase its pricing power at home, Wal-Mart has decided to use its mass to become a better global buyer. The company is reaching farther back into the supply chain to source products such as hardware and apparel that it now buys from outside vendors and importers. “We realized that as we continue to expand internationally the need to leverage international and domestic buying power was key, and the only way to do it effectively is to do it ourselves,” says Ken Eaton, who heads global procurement. The company has opened 21 offices around the world to oversee its factories. The idea is to source goods universally for all stores where feasible, so the 20 locations in Brazil and the 250 in Britain can get the same price as the 2,800 U.S. Wal-Marts.

By becoming contractor, importer and wholesaler, Wal-Mart expects not only to save money buying things, but also to cut down inventory expenses by speeding up the supply lines. Wal-Mart figures to take 20% of the cost out of procurement over the next five years and improve gross profit margins by nine percentage points worldwide on general merchandise it buys directly. In retailing, this figure is astonishing. For instance, Wal-Mart buys about $6 billion worth of goods from China. Multiply by .09. Take to bank.

At ASDA the company was selling mens jeans for about $24 after paying $15.31 per meter for just over 45,000 meters of material to make them. Then the buy was moved to Bentonville, and the conversation went something like, “Wed like 5.5 million meters, please. Now whats your price?” Try $5.21 per meter. As a result, ASDA slashed its retail prices in half and upped its annual jeans sales to 1 million, from 174,000. ASDA is acquiring some 2,000 products from Wal-Marts global network, and its gains might have set off a consolidation spree. Last week, Morrisons, the U.K.s fifth-largest chain, launched a takeover offer for Safeway, the fourth-largest. ASDA could join the fray.

ASDA is making its mark on Wal-Mart, too. ASDAs George brand of apparel is one of the most popular private-label lines in Britain, generating sales of around $1.6 billion in 2002, and Wal-Mart recently launched it in the U.S. “Were selling apparel anyway,” says Claire Watts, Wal-Marts fashion boss. “Would it kill us to be a little more up to date?”

Wal-Mart is also importing ASDAs recruiting philosophy, “Hire for attitude, train for skill.” Labor is a particularly ticklish subject at Wal-Mart because unions have

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Wal-Mart And Wal-Marts Push. (May 31, 2021). Retrieved from