Walmart Moves into South Africa, but It Won't Be Easy
The entrance of Walmart (WMT) into South Africa via the company's intended purchase of Massmart puts it into a nation with a developing economy, high hopes and consumers who, the retailer's past suggests, might be just right for its future.
The road ahead won't be easy. Obviously, the political and economic conditions in developing economies can be volatile. Just look at Venezuela, a country with lots of potential but one that's been rent by political turmoil and middle class flight. In fact, Venezuela would be a rotten address for Walmart right now, even if it could keep on the good side of the country's eccentric president.
People occupying the border between the working and middle class are among those Walmart needs. The company's business model was designed to effectively serve consumers whose income falls in the lower half of the economic spectrum. Walmart's slogan -- We Save People Money So They Can Live Better Lives -- isn't just a marketing line, but Sam Walton's original idea. And he acted on it diligently, even breaking retail norms about how low discounts ought to go. Once, a good quality television was a major purchase that a middle-class family might save months saving to afford. Now, even low-income consumers routinely purchase advanced flat-screen televisions and other consumer items at more affordable prices, and Walmart had a lot to do with that.
In South Africa, a society in transition, a large part of the population will struggle to achieve middle-class status over a generation or perhaps more, while a smaller but wealthier segment works to hold onto that condition. Both will desire consumer goods, but they also will want to conserve limited discretionary incomes just like folks in the U.S. rural South of the 1960s where Walmart started.
Walmart's Massmart purchase will also afford it access to 12 other African nations where Massmart runs stores. Few Western retailers have tried to operate extensively in sub-Saharan Africa, which is home to an enormous population, great mineral wealth and endemic political instability. Yet, by going into South Africa, Walmart is taking the safest gamble possible on what could be a tremendous return down the road, long after its growth potential in the U.S. is essentially exhausted and even beyond its most prolific growth phase in South Africa.
Walmart's recent expansion efforts have concentrated largely on the BRIC nations -â€" Brazil, Russia, India and China -â€" and number of other countries in Latin America, including Mexico, that also are gaining economically despite growing pains. Walmart is making big investments in countries expected to emerge as larger and lesser economic powers within a generation. South Africa may have a more uncertain route, but if it trails the others, it may not be by much. As South Africa thrives, its neighbors in Africa will get an economy stimulus that is unprecedented in sub-Saharan Africa, and may begin to see middle class expansion in the generation following.
All the while, Walmart will be repeating internationally a process that it underwent in the first 30 years of its development in the United States when it emerged as the retailer that could most effectively serve consumers who were first enjoying significant discretionary incomes.
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