Wal-Mart Puts Stock in Continued Growth Around World

The Nov. 21 naming of Mike Duke to succeed Lee Scott as Wal-Mart’s president and CEO fits nicely into the company’s plans to further expand into international markets.

Duke, 58, started at Wal-Mart in 1995 and became Wal-Mart’s international division president in 2005.
And under Duke’s leadership of the international division, Wal-Mart’s international sales have jumped from $59.2 billion in 2005 to an estimated $103 billion for the company’s fiscal year, which ends Jan. 31, 2009, according to a research report by Morgan Stanley analyst Gregory Melich.

Duke will start his new duties on Feb. 1.

Wal-Mart’s international division is the company’s fastest growing sector. Wal-Mart’s international division now accounts for about 25 percent of Wal-Mart’s total sales. In 2000, the division generated 16.8 percent of sales.

“We believe international markets have the potential to offer the opportunity for us to bring many more customers our concept of saving people money so they can live better,” he wrote, echoing the slogan the retailer adopted last year.

One analyst, though, said he didn’t think naming Duke indicated a stronger push in overseas markets.
Duke “was the head of the U.S. Wal-Mart division. He headed international, so he knows all aspects of the company,” said Bernard Sosnick, of Gilford Securities Inc. of New York. “It doesn’t necessarily signal one thing or the another.”

Before Duke was selected to be Scott’s replacement, Wal-Mart was planning to slow its domestic expansion while growing overseas stores.

Scott said during the annual shareholder meeting in June that the international market poses a “tremendous opportunity” for Wal-Mart and that the division was “going to be an even bigger part of the company.”

In an Oct. 28 capital expenditure forecast report, Wal-Mart said the company expects to have added 23 million SF to its U.S. market during the fiscal year that will end Jan. 31. And for the fiscal year that starts Feb. 1, Wal-Mart forecasts cutting the growth to only 14 million SF in the United States. But outside the U.S., Wal-Mart will add between 19 million and 20 million SF during the upcoming fiscal year.

And that expansion makes sense for Wal-Mart, said Emek Basker, an assistant professor at the University of Missouri’s Department of Economics who has written about Wal-Mart. Wal-Mart is outgrowing the United States market, Basker said in an e-mail in November.

Wal-Mart operates more than 4,000 stores and Sam’s Clubs in the U.S. and has a presence in almost every market, Basker said. By the end of 2005, nearly half of all Americans lived within five miles of the nearest Wal-Mart or Sam’s Club and 88 percent lived within 15 miles, Basker said.

“This means when Wal-Mart opens new stores in the U.S. it has to either move into territory to which its format is not well suited … or it risks cannibalizing its own sales,” Basker wrote. “If the company wants to continue expanding at its historical rate, the international market is the only viable option.”

Wal-Mart will continue to focus on its overseas markets as an avenue for growth, Scott said during a Nov. 13 conference call.

“Our international performance is solid,” Scott said. “We will continue to invest in those international markets with superior growth opportunities that can deliver enhanced returns.”

One of those markets could be Russia.

In April, Wal-Mart named Stephan Fanderl as president of its Wal-Mart Emerging Market-East to head the company’s efforts to explore business options in Russia and other markets.

Fanderl had worked at the Rewe Group, a German retailer and travel company.

Wal-Mart also has been registering trademarks in Russia since 2005. Wal-Mart has trademarked the Russian spelling of the store name as well as the numerous private label brands sold in its stores.
Last week, Wal-Mart spokesman Kevin Gardner said the Russian market still is being studied and no decision has been made.

Gardner also said the company doesn’t comment on markets it might enter.

“But our overall market-entry strategy priorities are to: concentrate on the markets where we already have operations,” Gardner said. “And [to]look for growth opportunities in markets where customers want to see us and where it makes sense for our long-term growth.”

The Bentonville retailer has been pushing its way into overseas markets since November 1991, when it opened stores in Mexico.

Mexico has accounted for Wal-Mart’s biggest growth with more than 1,100 of its 3,250 international stores located there. It is operating in 13 countries.

But Wal-Mart hasn’t been a hit in every market.

It took a $863 million loss when it sold its German stores in 2006

“Some of the problems that [Wal-Mart] generally has, which they usually eventually get right, is adapting to the local markets,” Levy said. “In other words it’s taken Wal-Mart some trial and error to recognize that they need to do things very locally.”