WAL-MART SEES GLOBAL GROWTH DESPITE GERMAN DISAPPOINTMENT

JON SPRINGER

NEW YORK -- Wal-Mart is "disappointed" with its performance in Germany but remains bullish on global growth, John Menzer, chief executive officer of Wal-Mart's International division, said in remarks to the Goldman Sachs Global Retailing conference here.

Menzer said that Wal-Mart stores outside the United States will account for one-third of the company's sales and growth over the next three to five years. The Bentonville, Ark.-based retailer opened its first store outside U.S. borders in Mexico in 1991, and today operates in nine countries. Its stores outside the U.S. -- in Mexico, Canada, Argentina, Brazil, the United Kingdom, Germany, China and Korea -- will account for $22.7 billion in sales in 2000, Menzer said.

Wal-Mart's performance in Germany -- which the company entered via two acquisitions in 1998 -- has been "disappointing," Menzer said, citing labor and regulatory difficulties there. Those challenges have affected Wal-Mart's ability to implement its customary logistics and operations strategies, Menzer said.

"Our problem in Germany is not customer acceptance; our problem is the cost side and logistics," Menzer said. "We're the first retail company with our kind of distribution capacity to operate there. We're a pioneer, and pioneers get the arrows."

Menzer said the recent promotion of Dave Ferguson to president and chief executive officer of Wal-Mart's European operations will help turn things around. Ferguson previously led Wal-Mart's expansion into Canada, where it today has become a major retail force, Menzer noted.

Elsewhere in the world, Menzer painted a rosy picture of Wal-Mart's international operations, particularly in Mexico, China, Korea and Canada, with the company's supercenter concept store the growth vehicle.

"Food continues to be an important part of our growth internationally," said Charles Holley, chief financial officer of Wal-Mart International.

Wal-Mart is showing an ability to tailor store designs to local conditions, Menzer said, citing a subterranean Supercenter recently opened in Dalian, China, and an eight-level vertical store in South Korea.

Noting that Wal-Mart is "still very young as an international company," Menzer said recruiting and training store managers and executives will be a major component of its future success. Leveraging Wal-Mart's size and scope in sourcing, branding and sharing best practices will also be critical.

Global buying power helps Wal-Mart compete in countries where competitors have a larger market share, such as Argentina, Menzer said. "When you've got 11 stores and you're going up against a Carrefour with a 30% market share, you better have the best sourcing in the world," he said. Wal-Mart works with its vendors on long-term plans that allow Wal-Mart to buy as much as it needs without restraining its suppliers. Wal-Mart is also working to roll out private-label products, such as its Alcott Ridge wines, worldwide.

"Logistics are our biggest challenge throughout the world," Menzer said.

Best-practice sharing among various international operations is resulting in a flow of ideas that helps the company worldwide, Menzer said, noting that such Wal-Mart practices as speedy checkout started in Argentina and such regional product successes as Tae-Bo videos (Canada) and Pokemon (Asia) have spread to all of its divisions.

"When we first went international, our ideas started in the U.S. and went out," Menzer said. "What's starting to happen is that we're seeing good ideas coming back to us from all our international divisions."