Wal-Mart- eying the global market
Wal-mart, the largest retailer in the world was established in US (Arkanas) in the year 1962 by Sam Walton, and grew steadily with sales figure of $218 billion and some 4500 stores by 2002. In the early stages Wal-mart operations were confined to the United States, where it established a competitive advantage based upon a combination of efficient merchandising and progressive human relations policies, probably taking a leaf out of the book of F.W Taylor.
Wal-mart was among few of the companies to implement information system to track product sales and inventory. Among some of the other successful strategies Wal-mart implemented were sharing widespread stock ownership among employees and pass on some of its benefits as low prices on to the consumers. With having substantial market share in general merchandising where it already had huge market presence, allowed the company to successfully foray into food retailing and make a huge dent in the market share of some of the established supermarket.
The competition in the domestic market by the year 1990 made Wal-Mart to think of expanding and by 1995 they were already present in 50 states of USA and by the year 2000 the company decided to go Global as they could sense saturation in the US market.
Going global was not such a smooth sailing though for the company, the critics wrote them off saying Wal-mart is to American a company to succeed in the global market. They predicted that constraints of Infrastructure, logistics and different consumer preference and some well established retailer’s presence would make it difficult for the company to succeed globally.
Unperturbed by the perceived constraints Wal-mart started its global venture in 1991 by opening its first store in Mexico, as a joint venture with Cafera, one of the largest retailer stores in Mexico. As predicted, Wal-Mart made a number of mistakes that seemed to prove the critics right. Poor infrastructure, crowded roads and a lack of understanding with local suppliers, many of whom could not or would not deliver directly to Wal-Mart stores or distribution centres resulted in stocking problems and raised costs and prices .There were also problem with merchandise selection as most of the items housed in the Mexican shop were similar to that of/in the US, which did not go too well with the Mexican market.
Learning from its mistakes Wal-mart adapted itself well to meet the local environment requirement and needs. Some of the initiatives taken by the company to resolve the current crises included:
• A partnership with a Mexican trucking company which helped the company to dramatically improve their distribution system.
• A more careful approach towards stocking practices meant the stores sold merchandise that appealed more to the local tastes and preferences.
These strategies started paying rich dividends to the company and in the year 1998,Wal-mart acquired a controlling interest in “Cifera” and by the year 2002 Wal-mart was more then twice the size of its nearest rival in Mexico with 600 stores and revenue of more then $10 billion.
With some great results in Mexico, Wal-mart followed the same strategies and subsequently entered into eight other countries. It entered into JV partnerships with other retailers in Canada, Britain, Germany, Japan and South Korea .In Brazil, Argentina and China Wal-mart established its own stores. As a result the company had over 1200 stores outside the United States, 303,000 associates and generated international revenue of more then $35 billion.
Wal-mart continued its steady growth globally in spite of the few early difficulties it faced, and registered high growth rate.
• In 2004 Wal-Mart generated over $256 billion in global revenue, establishing a new record and adding more than $26 billion in sales. The Company earned almost $9.1 billion in net income and grew earnings per share by over 15 percent.
• Subsequent to fiscal year-end 2004, in February 2004, the Company completed its purchase of Bompreco S.A. Supermercados do Nordeste (“Bompreco”), a supermarket chain in northern Brazil with 118 hypermarkets, supermarkets and mini-markets. The purchase price was approximately $300 million.
• In 2006 Wal-Mart net sales rose 9.5% to a record $312.4 billion. Net income rose 9.4% to a record $11.2 billion. Our earnings per share grew double-digits from $2.41 to $2.68 per share.
• In 2006, Wal-mart were doing around 20% of there business abroad. Wal-Mart’s marketplace is clearly the world.
• Wal-mart has total International portfolio divided among three of the Geographical locations(The Americas, Europe and Asia) with Americas – 71%, Asia – 17%a and Europe – 12%
While store development and expansion has experienced significant growth, it is not the only measure of success. The division has posted impressive financial results as well. Wal-Mart International announced that 2007 fiscal year end sales reached $77.1 billion, a 30.2 percent increase over the previous year, and that operating profit rose to $4.2 billion, an increase of 21.5 percent over the prior year.
Looking at some of the key information pointers above, Wal-Mart U.S. expects to open over 305 new, relocated or expanded units in the fiscal year ending January 31, 2007. Wal-Mart International plans to open over 220 new, relocated or expanded stores in the fiscal year ending January 31, 2007. The company further plans to continue acquisitions where they can add strategic value to the business.
In the year 2007 Wal-Mart were hit by twin turmoil’s in the housing and credit markets, which further fuelled there, reason to look beyond U.S. and identified India as one of the potentional growth market. Wal- Mart which already pulled out of Korea and Japan this year, were constantly on a look out to enter the India Market and there reasons were quite obvious.
India being one of the emerging markets was an obvious choice for Wal-mart with an estimated 12 million kirana shops in India. Of these, the largest consumer-goods companies in the country are only able to service less than 10% of them. This means that 90% of these small stores are not directly serviced, providing a large and new market opportunity for the joint venture. However entering a country through the wholesale channel will be the first time for the Wal-mart globally.
After years of looking for a way into India’s fast-growing but highly protected retail market, Wal-Mart Stores Inc. is trying a backdoor approach teaming up with an Indian phone company Bharti Enterprises to court the country’s burgeoning middle class. India’s Bharti Enterprises plans to invest up to $2 billion to $2.5 billion by 2015 in setting up a nationwide chain of supermarkets and retail shops in partnership with U.S. chain Wal-Mart. Together, they will set up 15 wholesale cash-and-carry stores over the next seven years. Focusing on the wholesale segment is Wal-Mart’s best immediate option, given that India restricts direct foreign investment in consumer retailing. Despite obvious cultural and business challenges, Wal-Mart International has experienced success because of its ability to transport the company’s unique culture and effective retailing concepts to each new country. The company makes a concerted effort to adapt to local cultures and become involved in the local community. Associates respond to customer needs, merchandise preferences and local suppliers. By serving each hometown in the same way, Wal-Mart International has realized significant growth with potential for much greater development worldwide.
In 2007, Wal-Mart International has opened around 320 to 330 units in existing markets. Relocations or expansion of existing stores has accounted for approximately 30 of these units, while the remainder represents new operating units for the company.
In the coming year 2008, The Company projects its capital spending in fiscal 2008 to increase by approximately 2 to 4 percent, which compares to the 15 to 20 percent increase forecast for fiscal 2007, Wal-mart, believes that capital spending in the U.S. will be approximately flat to the current fiscal year. This reduction in growth is expected to result from: building fewer U.S. units; anticipated flattening of construction costs; improvements in the distribution centre network; and design efficiency.”
Sources: Wal-Mart annual report, One source, Business week, Wal street journal, International journal of retail and distribution management.
Prabhat Shukla is a business consultant by profession, and can be contacted for any feedback or response on [email protected]