SAM'S GREETED WARMLY IN BRAZIL

MICHAEL KEPP

SAO PAULO, Brazil -- Wal-Mart Stores' initial expansion into South America has been an early success, according to the company.

A Sam's Club the opened here in May -- its first South American store -- is exceeding the Bentonville, Ark.-based retailer's expectations.

Gerardo Ruiz, a Wal-Mart spokesman in Bentonville, said sales volume at the warehouse club unit "has been a pleasant surprise," although he declined to reveal specifics.

Local observers, however, said business has increased steadily and membership has nearly doubled to 20,000 from 11,000 at the May opening.

The store, located in the working-class suburb of Sao Caetano do Sul, is the first of five stores -- three Sam's and two supercenters -- that Wal-Mart plans to open here in Brazil's largest city by the end of 1996.

Though Wal-Mart has not disclosed plans to open stores elsewhere in Brazil, observers said Rio de Janeiro, the country's second-largest city, will be the location of its sixth store.

The retailer's South American expansion will also include at least five units in Argentina, according to the company. Wal-Mart, operating independently there, expects to open two Argentina stores later this year.

The Sao Paulo club unit is the result of a 60%-40% joint venture Wal-Mart formed last year with the local Lojas Americanas retail chain to open Sam's clubs and supercenters in Brazil. As majority partner, Wal-Mart's initial investment for opening the first five stores has been estimated at $100 million by observers.

The Sam's Club here, which serves mainly small, dues-paying retail members such as restaurants, bars and other businesses, occupies 108,000 square feet and carries 2,500 items. It is modeled after the retailer's U.S.-based Sam's clubs: high ceilings, stark architecture, and pallets and bins rather than conventional shelves.

Perishables are at the back of the store; food and drink items are on the right. Together, the categories take up half of the club's total floor space. The remaining inventory consists of apparel, hard and soft housewares, and jewelry, watches and perfume.

The main difference between the Sao Paulo store and its U.S. Sam's counterparts is that 85% of its merchandise is Brazilian, and only 15% is imported, with a sizable share of the imports coming from the United States, observers said.

But in the case of foodstuffs, less than 10% are imported, as Brazilians prefer to buy locally produced foods, according to observers. Virtually all of the food imports are alcoholic beverages.

Luiz Fazzio, a Wal-Mart director in Brazil, told the Gazeta Mercantil, the country's largest business daily newspaper, "Sam's operational format allows us to sell at 5% less than our [warehouse club] competitors." But Ruiz said prices at the store "weren't necessarily 5% lower than competitors', who tend to check Sam's Club prices and then bring their [own] prices down."

Observers said Sam's prices were 5% to 30% below retail store prices in the region.

Warehouse club competitors here said Wal-Mart's initial foray into the Brazilian market has had a mixed impact on them.

Makro Atacadista, the Brazilian subsidiary of the Dutch-based Makro wholesale warehouse chain, has four outlets here and 24 throughout Brazil -- the closest of which is five miles away from the new Sam's. Alvaro Souza Lima, Makro's purchasing director, said one of the drawbacks of Wal-Mart's entry here has been the 12 to 15 people the company has hired away from Makro since last year.

However, Souza Lima added that Sam's arrival in Brazil "will help develop the cash-and-carry concept, which will benefit us, too, and make our suppliers more responsive to our palletizing and packaging operations."

Another competitor is the Apoio Clube de Compras, a wholesale club chain with three stores in Brazil -- two of which are in Sao Paulo. Next year Apoio intends to open another cash-and-carry store here about a mile from the Sam's Club.

Sergio Giorgetti, commer-cial/operations director at Apoio, said, "Sam's Club's coming to Brazil should force all cash-and-carry competitors to have more competitive prices, higher quality goods and better operational management." He also said Sam's arrival "will make our suppliers more responsive to our bulk-packaging needs."