RETAILERS ADJUSTING AS WAL-MART LOOMS

MICHAEL KEPP

RIO DE JANEIRO, Brazil (FNS) -- The impending arrival of Wal-Mart Stores in South America next year already has begun to stir activity in the Brazilian retail sector.

Wal-Mart, Bentonville, Ark., the world's largest retailer, has said it expects to begin opening its Supercenters and Sam's Clubs in Argentina and Brazil over the next two years, with the first unit possibly opening in Sao Paulo by the end of the year.

Carrefour, Paris, which operates 31 stores

in Brazil, likely will face the most significant head-to-head com-petition with Wal-Mart, according to local trade observers.

As a result, Carrefour reportedly is contemplating adjustments to its workhorse hypermarket format. The French retailer is planning to open smaller, more compact versions of its hypermarkets, ostensibly to better compete with Sam's membership warehouses, according to one Brazilian news report.

Sam's Club, a new format here, should be particularly successful because of the consumer demand for low prices, observers said.

Carrefour officials, however, said the company would not change its strategy as a result of Wal-Mart's arrival and declined to comment on the impact the American retailer may have here.

In Brazil, Wal-Mart expects to open three Sam's Clubs and one Supercenter by 1996. It has joined forces with Lojas Americanas, Brazil's biggest retail chain, in a joint venture. (Wal-Mart formed a similar joint venture with Mexico's biggest retail chain, Cifra, when it opened its first stores there. In Argentina, where Wal-Mart plans to open two Sam's and two Supercenters, the American company will operate independently.)

Lojas Americanas operates 89 discount department stores and had sales of about $1.1 billion in 1993. The Brazilian company will have a 40% interest in the joint venture, which expects to open its first stores in Sao Paulo, and Wal-Mart will have a 60% stake.

In what may have been an attempt to pave the way for the joint venture, Lojas Americanas last year successfully hired Armindo Malafaia away from Carrefour. Malafaia was the regional director of Carrefour's Rio de Janeiro operations at the time. His new title with Lojas Americanas was not available.

Makro, a Dutch company that operates cash-and-carry outlets for nondues-paying members, also will likely face stiff competition from Sam's Club. Makro, with 24 stores in Brazil, caters mostly to restaurants and bars, which is the primary reason about 75% of its merchandise is food. Sam's sells more nonfood items and general merchandise.

"We'll face a lot of nonfood-item competition with Sam's Clubs because of Wal-Mart's buying power, especially its plans to buy lots of imported goods," said Alfredo Burghi, president of Makro. "Though our 110 stores worldwide give us strong import buying power, Wal-Mart and Sam's Club stores have far greater buying power and will use their economy of scale and bulk purchases to reduce their cost structure." Wal-Mart officials already were familiar with Carrefour and other Brazilian retailers before the recent decision to expand here. According to one local account, the late Wal-Mart founder Sam Walton, on a business trip here in the 1980s, spent so much time in a Carrefour hypermarket -- where he measured the shelves and aisles with a tape measuure and photographed food displays -- suspicious store guards detained him. Now his research is finally finding application.

Lojas Americanas already operates a store similar to Wal-Mart's Supercenter format, but its assortment is not nearly as broad. In Brazil, Wal-Mart Supercenters are expected to stock far more items than Lojas Americanas -- 50,000 stockkeeping units as opposed to 15,000 for the Brazilian company -- and far more imported goods.

The two companies are not expected to compete head-on.

Other Brazilian competitors are worried about how quickly Wal-Mart will expand here and whether the rate will be as fast as U.S. retailers expanded in Mexico.

Five years ago, for example, there were only two warehouse clubs in Mexico, one operated by Sam's and another by the former Price Co. of San Diego. Today there are 29 warehouse clubs in Mexico.

"Wal-Mart's putting up one Supercenter in Sao Paulo doesn't worry us because it's a very big city with lots of room for one more hypermarket," said Nelson Veiga, a director of the Paes Mendonca supermarket chain, which operates two hypermarkets there. "A Wal-Mart expansion plan that puts a Supercenter near a Paes Mendonca store is another matter."

Wal-Mart's expansion strategy probably will be to minimize initial risk by putting up fewer Supercenters and far more Sam's Clubs, which carry a smaller variety of merchandise, thus reducing supply and inventory control problems. A traditional supermarket's operating cost is equivalent to 20% of its sales, whereas a Sam's Club's operating cost is 8% of its sales. Wal-Mart also reportedly plans to initially lease or rent space for Sam's Club rather than buying or building the space.

Another advantage Wal-Mart will have over the competition is its technological edge. Wal-Mart reportedly plans to use electronic data interchange, a computer hookup between retailers and suppliers, to increase the speed of getting merchandise, a strategy it already uses in the United States.

It also plans to use a time-saving and money-saving palletized delivery system in which large merchandise, such as ovens, are shipped on pallets and fork-lifted right onto the sales floor. The pallets then serve as display racks.

"Wal-Mart's economy of scale, its international brands, its global sourcing for imports, its

technological and logistical edge, and its likely rapidity of growth, will make retailing a far more competitive business in Brazil," said Marcos Gouveia de Souza, the head of a Sao Paulo-based retail sector consulting firm. "So much so that Wal-Mart will even increase competition among local and foreign suppliers here. In short, Wal-Mart will create quality, price and other competitive benchmarks here that will be very hard to beat," he said.

Trade observers said a key to Wal-Mart's success is its plan to stock Supercenters and Sam's Club units with plenty of imported items, as much as 50% of the overall selection. Imports were crucial to Wal-Mart's success in Mexico, the observers said.

Repeating that formula here makes good sense, given the current dearth of imported goods, observers said. The partial lowering of trade barriers, which led the way to more imports, began here in 1991. The government's new economic plan also makes imports cheaper.