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Wal-Mart International Improves Game

Bentonville, Ark. —“We play to win,” said Mike Duke, vice chairman Wal-Mart Stores and ceo, Wal-Mart International to analysts last week — and depending on where one looks, that is what Wal-Mart is doing in steamroller fashion around the globe.

The qualifier is the big retailer's retreat from such countries as Germany, Korea and Indonesia over the years — but it is hard to argue against a division with $77 billion in sales (only Metro, Tesco, Home Depot, Carrefour and Wal-Mart itself are bigger) and an operating income of about $4 billion.

With nearly 3,000 stores up and running, Wal-Mart International has pioneered an exceedingly flexible, locally-obsessed strategy that is succeeding in both mature consumer markets, such as its 342-store operation in the U.K., and in developing zones like Mexico, Brazil and China.

Wal-Mart International now uses six different store formats in nine different types, each gauged to best serve a specific socio-demographic population and various shopping goals. One of the hottest types is the “soft discount” model, perfected in Mexico as Mi Bodega, and now heading to India where, with joint venture partner Bharti, the first stores will open next spring. Bharti will also open the first cash-and-carry units, which cater both to low income consumers as well as small business owners.

To analysts and investors concerned about the high risks undertaken by the International division, Duke emphasized that 80% of the new store square-footage expansion next year will take place in Canada, Mexico and China.

The first two are runaway success stories for Wal-Mart. More than 100 towns and communities in Canada have lobbied to get a Wal-Mart, said Wan Ling Martello, International cfo and svp strategy.

In her slide show, Martello showed a button worn by some associates in greater Ontario that, translated, says “I Speak Cantonese” — a direct appeal to what she called the largest ethnic group in Canada, and one she said has more than $12 billion in spending power. Wal-Mart caters to this group with selections in food and health and beauty, and with Cantonese ads, signage and packaging.

Martello mentioned that the extension of the U.K. apparel-based brand George into bed, bath, dining and home accessories has been judged satisfactory — 270 product “lines” are averaging a total of $20 million per month in sales — and George Home will soon roll into Canadian stores.

Within a few days, Wal-Mart will open its first Banco Wal-Mart branch in Mexico, which Martello characterized as not a “sidebar business” but another way to “serve our customers with the same value proposition” as in merchandise. She noted that 80% of the Mexican population is “unbanked.”

As for China, Wal-Mart more than doubled its store count by the acquisition of the 101-unit Trust-Mart chain, and the company said sales in those units are exceeding plan.

Wal-Mart's buying moves have also been smart ones in Brazil, said Vicente Trius, ceo and president of Wal-Mart Brazil, pointing to improved sales and EBITDA at the stores of two acquired chains there.

With $6 billion in volume last year, Trius said Wal-Mart now commands more than a 10% market share in Brazil. The growing consumer culture there includes 71% low-income people, he noted, and they have responded with enthusiasm as the cost-cutting operator has continued to deliver better values. Wal-Mart supercenters, for example have improved from a -2% price differential vs. competitors in 2005 to a -8.5% differential today, as the overall chain surpasses 300 stores.

An underlying key to its massive rollout worldwide is to develop local talent and to stay keenly aware of local wants and needs. That, when combined with the leverage it wields in purchasing and logistics, makes a powerful growth scenario.

In November, when Wal-Mart International adds its 10th store type — bank — to its range of hypermarket, superstore, supermarket, soft discount store, general merchandise store, member club, cash and carry, apparel store, and restaurant, this retailing titan will have its newest chance to prove that as it conquers continents, it is really doing it one neighborhood at a time.

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