WAL-MART ON TO SOUTH AMERICA

JOANNA RAMEY

FAYETTEVILLE, Ark. (FNS) -- Wal-Mart Stores will make its first foray into South America on the backs of its Supercenter and Sam's Club formats. At the company's annual meeting here, which provided a glowing picture of the company's U.S. and Mexican Supercenter business, David Glass, chief executive officer, revealed plans for the company to expand into Argentina and Brazil. Among the program's elements are:

In Argentina, the company will open a Supercenter and a Sam's Club unit in Buenos Aires, and also will open one of each in another undisclosed location of the country. The stores may open next year.

In Brazil, Wal-Mart plans to open one Supercenter and three clubs by 1996 in a joint venture with Lojas Americanas, the country's largest discount retailer. While Wal-Mart wouldn't state which format will open first,

sources said the first unit will open this year in Sao Paulo. Wal-Mart will hold 60% of the venture and Lojas the remainder.

Lojas operates 89 stores and posted $1.083 billion in 1993 sales. Wal-Mart's sales for the year were $67.34 billion.

Bob Martin, president and chief executive officer of Wal-Mart's international division, said the company plans to open only Supercenters and Sam's Club units in South America, steering away from its traditional discount centers on which its retail empire has been built.

Glass told the meeting that Wal-Mart is moving ahead quickly with plans to expand its Supercenter business in the United States and Mexico.

"Our Supercenters are doing very well," he said. "I think we'll have an even more aggressive [Supercenter] program next year. The sales are there, the profits are there."

Glass stressed that Supercenter return on investment is in excess of that of the chain's traditional Wal-Mart discount stores or Sam's units.

In the United States and Mexico, the company this year plans to add 70 more Supercenters to its fleet, bringing the total to 149. Last year Wal-Mart added 38 Supercenters to its stable. Wal-Mart's retail empire encompasses more than 2,400 stores and wholesale clubs. In locations where Sam's Club units are in the same town or even next door to Wal-Mart Supercenters, merchandise is being varied. Dean Sanders, president and chief executive officer of the Sam's operation, said both store concepts can easily exist side by side.

"There is definitely room for both," Sanders said in an interview during the meeting. "We [the clubs] have to merchandise a little bit differently. We may not carry some of the commodity items that they get. We can do some things in the mix and really focus in on the small business. "It's a good complement. It draws traffic in from a lot of different areas. Customers will go to both," Sanders said.

The company plans to add 40 to 45 new Sam's Club units this year to its portfolio of 430 clubs, and bring the Pace units it acquired up to speed.

Glass attributed the club operation's 3% same-store sales drop to cannibalization from other units and to the transition to more private-label items, which are sought by business members.

Wal-Mart's overall Supercenter strategy is being supported in a number of recent financial analyst reports.

"We believe that through the Supercenter format, Wal-Mart likely will become the dominant force in food retailing by the end of the decade," stated a recent investment report from Salomon Bros., New York. The report anticipates 1994 Supercenter sales will more than double to $6.3 billion. "Given consumers' increasing time constraints, the Supercenter format has the potential to be the company's most explosive growth format."

In another recent report, Morgan Stanley, New York, pinned Wal-Mart's strong Supercenter profit margins on its extensive use of private labels -- both its high-end Sam's American Choice brand and its basic Great Valu brand. The report said Wal-Mart's private-label business exceeds the 20% usually seen at traditional supermarkets.

"These house brands, while offering lower prices to the consumer for comparable-quality foods, generate stronger gross margins and thus provide the chain with the ability to price more aggressively on branded goods," the report said. Also in Wal-Mart's favor is its strategy to replace existing Wal-Mart discount stores with the larger Supercenter stores, which allows sales to "take off immediately," the Morgan Stanley report said.