Walmart's CEO Duke Thinks Globally But Needs Help Locally
Don't worry, Walmart (WMT) CEO Mike Duke is telling investors, we have a world to conquer.
In his remarks to employees and investors at the company's annual meeting, Duke focused on Walmart's global opportunities to an extent that signaled that the company's growth focus is turning from the United States to international markets.
Yet, international experience can make Walmart a more adept retailer abroad and at home. The U.S. generates three times as much revenue for Walmart as its international operations, so using global experience to boost domestic results is important short term, even if stalling sales performance here demonstrates that international growth must become an greater priority.
Walmart must develop new formats to grow beyond the nearly saturated rural and exurban markets it typically favors in the U.S. Duke barely mentioned Walmart's eroding comparable store sales -- those in locations open for at least a year -- in his remarks, but they are troubling investors because they're a drag on the company's share price. Walmart especially needs to expand in underrepresented markets -- particularly urban areas -- where it faces local real estate challenges, restrictive regulations, distribution difficulties and community opposition backed by politicians who themselves are spurred by interested parties including labor unions and entrenched competitors.
In many ways, the challenges Walmart faces in the United States resemble what it confronts overseas, so its international experience may eventually get it back on the growth track at home. Given regulation designed to protect small retailers in India, for example, Walmart has to deal with new local partners and restrictions as it expands operations. In countries from Britain to China, the company has confronted competition from major international retailers such as Tesco (TSCO), which has forced it to consider new methods of competition. Tesco has proven particularly adept at developing small store formats that make it at home in big cities, whether London or, with Fresh & Easy Neighborhood Market, Los Angeles.
Yet, operations abroad have provided Walmart success in their own right, particularly close to home. Over the 15 years since it bought the 122-store Woolco variety store chain, Walmart has grown massively in Canada and today operates 300 discount stores and supercenters across the country, Canada's population is a 10th that of the U.S., where Walmart has about 3,500 discount stores and supercenters. On the scale of stores to population, Walmart Canada is approaching a market penetration that took the retailer 40 years to achieve in the U.S.
Across the southern U.S. border, Walmart de Mexico enjoyed a comp store sales gain of almost three and a half percent for the first four months of calendar 2010, with total sales gaining almost 21 percent.
Walmart de Mexico, which includes operations in Central America, operates a variety of retail formats including discount stores, discount warehouses, supermarkets, hypermarkets and clubs. Although Walmart and Sam's are included, Walmart de Mexico also has chains with names such as Bodegas, Superamas and Suburbias that take a local approach to operations. Walmart de Mexico even runs about 370 restaurants.
Duke noted in his remarks that sharing best practices across national borders will be critical for the company. Certainly, the company's Latin American experience informed the development of the Hispanic-targeted the Supermercado de Walmart and Mas Club stores, both under U.S. test.
Even if maintaining the health of the U.S. operation is important, Walmart recognizes that it has arrived at a turning point and is investing significantly in international operations to boost its global supply chain and worldwide e-commerce capabilities. As growth opportunities narrow in the U.S., Walmart's global expansion provides the company access to markets with less intense competition from major retailers and other inherent advantages.
Economies in India, China and Latin America have been relatively strong. Gross domestic product in Brazil, a Walmart growth focus with 438 stores already, advanced by nine percent in this year's first quarter. Economic expansion and the corresponding rise of the middle class in key markets is something Duke referred to as an opportunity that Walmart must tap as it inevitably shifts its focus to more abundant international opportunities.
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