story by Kim Souza
Leaders with Wal-Mart’s Mexican and Central American business unit have announced a three-prong plan to grow sales over the next year on the heels of solid second quarter results across Latin America.
Scot Rank, CEO of Walmex, spoke at the Goldman Sachs Global Retail conference on Wednesday (Aug. 3) with an upbeat tone about the improving business climate in Mexico. The business unit is an important piece of Walmart International with $103.3 million in sales in the recent quarter, a gain of 5.6% from the prior-year period, despite the ongoing efforts to turn around the Sam’s Club business in Mexico.
“We plan to grow sales in three ways: Focusing equally on same-store sales gains, adding square footage and more e-commerce transactions,” Rank said during his prepared remarks.
Walmex anticipates sales growth of 4.1% in Mexico, and 7.6% growth at its stores in Central America this year.
COMP SALES, CHALLENGES
He explained that the retailer’s self-serve formats and Express models are performing well with traffic growth of 2.3% in Mexico and 3.2% in Central America in August on top of robust gains in the second quarter. Overall, the retailer said same-store sales rose 3.5% in August from a year earlier, the best reading year-to-date
Walmart operates 878 Express formats in Mexico averaging 12% comp sales growth this year. Rank said 52% of retail in Mexico overall is small format. He said margin performance has been stable even as the retailer has reduced prices through rollbacks and other promotions.
“Our expenses are 13% of sales, that compares to 27% of sales for most of our competitors. Our average ticket sale is also up 2%,” Rank said.
The retailer is improving its modular planning, retraining merchants and expanding its banking efforts with Banco Walmart, according to Rank.
“Banco Walmart is important to us. We are looking to accelerate growth as demand increases. Sales are up 50% this year and we have 635,000 credit card holders,” he said.
He said Sam’s Club and the turnaround efforts have been the division’s biggest challenge over the past year and half. New management was put into place in April and Rank said the efforts involve cleaning up inventories and increasing more imports from Sam’s Club U.S. Walmex said the most challenging category in general merchandise is apparel as more global retailers are entering this market.
“We expect gradual improvement in sales through the end of the year,” Rank said.
Walmex has scaled back the number of stores it’s opening by 15 this year, pushing those formerly slated for late December into 2015. This is a $1.02 billion reduction in the retailer’s 2014 investment plan.
Rank said the decision to move the 15 stores openings to January 2015 is related to timing and delays in getting permits.
“We opted to focus on our customers needs between December 15 and January 1 and not be distracted by new store openings during that two-week timeframe,” he said.
In 2014, the retailer will open 149 stores in Mexico and Central America. He said that’s a 4% square footage gain in these markets from last year.
“Central America has a robust real estate pipeline and less e-commerce sales, but as we complete our system integration of this market, we expect lower expenses in the next couple of years and opportunities to grow gross margin,” Rank said.
Walmex launched its general merchandise website one year ago and is seeing moderate growth in Mexico. Rank said the plan to grow e-commerce sales is ambitious, but includes a strategy to integrate the retailer’s network of stores and distribution centers in an omni-channel system.
He said the company is training 200 e-commerce employees to work the regional market and work with Wal-Mart’s main e-commerce team in San Bruno, Calif.
He said grocery deliver and online ordering of general merchandise are the two types of e-commerce operations that hold opportunity. Grocery home delivery is nothing new for Walmex. It’s a service that’s been around for decades, according to Rank.
He said it started with consumers phoning in orders, then faxing and emailing and now shopping directly online. Those orders are picked from warehouses and some 80% are picked from Superama sales floors. Rank said this business continues to grow with services being rolled out in Monterrey and Mexico City this month.
“Though many say grocery delivery isn’t profitable, it is for us and we see lots of opportunity,” Rank said.
Since launching the general merchandise site last year, Rank said use has exceeded the retailer’s expectations.
“We also operate 150 kiosks in stores teaching customers how to use the site and offering the opportunity to pay in-store and have the product delivered, as opposed to giving out their credit card numbers online. This has proven popular in light of the data breaches reported by other retailers,” Rank said.