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International growth could come from Asia

Wal-Mart International sees its greatest growth opportunities in Asian markets — China, Japan and Korea — even as it seeks to expand and refine its core markets in Mexico, Canada, the United Kingdom and Germany, which currently account for the bulk of its sales.

"We've really begun to ramp up in China," division president and ceo John Menzer told analysts last week. "We're going to grow China as fast as we can. We believe it's the only market we're in that can match up, long-term, to the United States in size."

Wal-Mart currently operates 20 stores in China, including 16 supercenters.

The company plans to open 120 to 130 units worldwide next year, adding to the more than 1,200 stores it already operates in 11 formats, ranging from full-line supercenters to restaurants to small, low-income bodegas. Menzer said experimentation in new formats will continue to be a hallmark of international operations.

With $35.5 billion in sales last year, the division recorded higher sales than all of Wal-Mart Stores in 1991. For the first six months of this year, the division posted $18.7 billion in sales, a nearly 17 percent increase.

Wal-Mart also now owns a 6.1 percent interest in Seiyu Ltd., which operates more than 400 stores in Japan, with options to buy up to two-thirds of that company. "We're spending a lot of time right now in Japan, trying to understand that market," Menzer explained. "Japan is the second largest consumer market in the world, but the retail market is very fragile and is consolidating."

Menzer said a feasibility study is currently under way, noting that Seiyu controls valuable retail real estate, particularly around the Tokyo market.

Wal-Mart currently operates a dozen supercenters, with 15 scheduled before yearend, Menzer noted. He said the market offers a strong economy, good demographics and long-term opportunities.

The same can't be said of other markets, particularly Argentina and Germany.

"Argentina has been in a 'hold' strategy for about the last two years while we we're waiting to see where the economy shakes out," Menzer said. "Argentina is currently the most difficult market we're in, and we don't know when that will change."

"Germany is a very, very difficult economy today and has sales far below our planned levels. Our business plan calls for a very strong improvement in the bottom line this year, and we are on that plan year-to-date," Menzer said.

While market expansion remains a driving force of the international business, Menzer also discussed a number of strategies to improve its merchandising efficiencies, including a global lifestyle fashions effort that will meld overlapping trends among consumers of different countries.

A key business strategy: centralized apparel product development, which will also necessarily involve improvements and greater standardization of sourcing, along with more closely tracking and reacting to consumer trends, he said.

The George apparel program, which was launched earlier this year, has been part of that effort, already expanding through Germany to the United Kingdom and other markets.

Wal-Mart International is also placing greater emphasis on private labeling, in general, already doubling those sales in Mexico and adding 2,000 skus of private-label goods in Brazil, he said.

The merchandising effort will also result in goods being displayed in lifestyle sections within the stores, he said.

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