Wal-Mart Is Leveraging a Global Presence

Visitors from the U.K. who have spotted one of Wal-Mart’s recent price-comparison ads in the U.S. might do a double take — the ads are quite similar to the “price guarantee” ads the company has been running for some time to promote its Asda banner in England.

“Asda’s price guarantee has been a phenomenal success for them,” noted Natalie Berg, global research director at London-based Planet Retail. “They are definitely taking some elements of that and using it in other markets.”

The U.S. price-comparison ads against traditional supermarket operators “are very much like the Asda ads, in terms of the look and feel,” she said.

The borrowing of the successful Asda ad campaign is just one example of an instance in which Bentonville, Ark.-based Wal-Mart Stores has leveraged learnings from its international division across other areas of the enterprise. Another example is the Walmart Express format, the small stores Wal-Mart has begun testing in a few U.S. markets based in part upon its experience operating smaller stores in Latin America.

“One thing they have done much better than their [large multinational] peers is sharing best practices across the organization, especially things like private label, global procurement and format development,” Berg noted.

See for Yourself: Wal-Mart Is Back on Track

“It’s not really so much about broadcasting from Bentonville any more; it’s more about taking best practices from international and sharing them around the enterprise.”

In addition to the importation of elements of the Walmart Express concept, Berg noted that some observers believe that Wal-Mart could look to its newest acquisition, Massmart Holdings in South Africa, for expertise on that company’s successful do-it-yourself building-supply format, with an eye toward possibly opening such a format in North America.

“Some people thought that really wasn’t their core business and they would divest it, but in a developing market, that’s actually a very successful format, and it does very well for them,” Berg said. There’s a possibility for them to add that to other markets.”

International Revenues

Wal-Mart generated more than a fourth of its revenues from its international division last year, or $125.9 billion out of its total worldwide revenues of $443.9 billion. Sales in the Walmart International division were up 15.2% over the preceding year, more than 10 times the 1.5% growth in the U.S.

“Wal-Mart’s international operations have been the main driver of growth for the retailer over recent years, and significant opportunities still exist across both overseas mature and emerging markets,” said Stewart Samuel, North American analyst at London-based consulting firm IGD.

He said IGD projects that Wal-Mart’s international sales volume will grow 8.5% between 2012 and 2015 on a compound annual basis, vs. projected growth of 3.2% in the U.S. International markets are forecast to account for almost 40% of total sales space by 2015, vs. 35% currently, Samuel said.

This year Wal-Mart is focusing on improving its execution in some markets, including Brazil (532 stores under various banners; photo at right) and China (374 stores), he explained. In addition, Wal-Mart is expected to focus on integrating Massmart — which operates 347 stores in Africa, mostly in South Africa but also in 12 other countries on the continent.

Despite the 15% sales growth in Walmart International last year, operating income outside the U.S. only increased about 10%. The company has said it is seeking to drive operating income at a faster pace than sales.

One of the keys for Wal-Mart success overseas, analysts note, is the rollout of an EDLP platform across its markets.

In a meeting with analysts following its annual shareholder meeting earlier this month, Doug McMillan, executive vice president of Wal-Mart Stores, said there are a couple of reasons he’s a “huge believer” in the power of EDLP, even though some markets might be much more accustomed to promotional marketing.

Price Comparisons, EDLP Drive Wal-Mart's U.S. Sales Growth

“First of all, EDLP builds trust with the customer, which is the No. 1 asset,” he said. “But what a lot of people miss — the second reason — is that EDLP takes a lot of costs out of the system. When you’re high-low, you have markdowns, you have payroll, you have damages, you have accidents that go along with those surges in freight. When you get that cost out of the system, and you pass that on to the customer, you spin the productivity loop.”

He recalled that when Wal-Mart first entered some U.S. markets, such as Michigan and California, some employees cautioned that EDLP would not work in those markets, either, because consumers there study their weekly circulars before deciding where to shop.

“Well, I’ve heard that about Brazil, and I’ve heard that about other places — Japan,” McMillan said. “It works because it builds trust, it takes costs out of the system, it helps you manage in-stock; it just works.”

Berg of Planet Retail noted that Wal-Mart’s strategy of entering markets through joint ventures, while highly effective in terms of leveraging local expertise, is also an impediment to implementing EDLP because of the challenges of removing costs from the business without full ownership.

“If you look at markets where they haven’t had full ownership, there was less incentive to drive down costs and make EDLP work,” she explained. “Something we found in Japan was that as soon as they took over majority control, they closed stores, got the costs down, and were able to invest in price. That’s really the Wal-Mart model.”

Wal-Mart gradually increased its ownership in Japanese retailer Seiyu (pictured) from 2002 to 2008. The 426-store operation is now a wholly owned subsidiary of Wal-Mart Stores.

Global Challenges

Other challenges Wal-Mart faces in driving profitability gains and moving to an EDLP model include infrastructure deficiencies in developing markets, such as China, Berg noted.

In addition, she said not being the No. 1 player in some markets — such as Brazil, where Wal-Mart is smaller than both Carrefour and Casino  — impedes Wal-Mart’s ability to get the best possible prices from suppliers, she explained.

Samuel of IGD described Wal-Mart’s efforts to reduce costs as much as possible — which the retailer calls EDLC, or everyday low cost — as the “foundation stone” of EDLP.

Wal-Mart Pursues Multichannel Expansion

“Its Brazilian stores are currently transitioning to this model and the groundwork is being initiated in China,” he noted. “The plan is to move all of its international markets to this model over time.”

In addition, “e-commerce and the application of technological innovation will also play an important role in the retailer’s growth internationally,” he added.

Wal-Mart is currently building a new global technology platform that will allow it to “simultaneously take new innovations to all markets,” Samuel explained.

Smaller Formats Poised for Growth in U.S.

“Initiatives which are currently being worked on in the U.S., such as enhanced search capability, endless aisle and store connect, will help to provide a consistent shopping experience irrespective of which of the retailer’s channels people are using.

“Wal-Mart has over 5,000 stores across its international markets, world-class logistics and distribution, and a powerful brand, which it can also leverage as part of its multi-channel approach. This will help to deliver its ‘anytime anywhere access’ and develop deeper relationships with its customers,” Samuel added. “These elements will be critically important as the [company] will face formidable competitors in this space — not only other multi-channel retailers, but also pure online operators.”

Although Wal-Mart Stores currently faces some controversy in its international operations because of alleged instances of bribery of local officials in Mexico, Berg of Planet Retail said she does not foresee that will have a “material impact” on the company’s international expansion.

See for Yourself: Wal-Mart Is Back on Track

“I don’t see that as being a major challenge to international growth, but I do see more pressure from shareholders to make sure that everything is being done properly,” she said, noting that the scandal does have the potential to slow down the company’s expansion in some markets.

“It’s going to be hard to say [what the impact will be] until we get some clarity around what did actually happen,” she said.

The New York Times in April reported that Walmart de Mexico, or Walmex, Wal-Mart’s Mexican subsidiary, had paid out up to $24 million to local officials to facilitate its expansion in the country, then later covered up its own investigation of the matter. Wal-Mart said it is currently investigating the matter.