Wal-Mart To Invest $1.8 Billion In Mexico Expansion

Wal-Mart’s Mexican business unit, Walmex, did not have much to cheer about last year, as comp sales throughout Mexico were down between 2% and 4% every month. But despite those problems, the retailer plans to invest $1.8 billion in expansion efforts this year.

David Cheesewright, the new CEO of Walmart International, said consumers around the world are stressed, with “significant slowdowns” in numerous markets, including the faster-growing developing countries.

Fortunately the operating climate in Mexico is showing signs of recovery and Cheesewright said the retailer plans to make hay during the sunnier times. The retailer expects to spend $633.38 million opening new stores, adding 3.7 million square feet of space. Mexican floor space will grow 5%, with Central American stores expanding 7.6%.

The plan calls for $263.9 million dedicated to remodeling and maintenance. It will devote $90.48 million to logistics and $143.26 million to e-commerce and other technology. Cheesewright and his executive team in Mexico made the announcements during an investor conference in Mexico City on Monday (Feb 24).

The Mexican market is important to the retailer’s overall international portfolio which Cheesewright characterized as “big and complex,” operating 6,300 stores in 27 countries under around 300 banners. If Walmart International stood on its own, it’s $136.5 billion in annual sales would make it the world’s second largest retailer behind Wal-Mart, Cheesewright said.

He said the retailer must move faster to ensure it has the products, shopping formats and conveniences that consumers want when they realize they want it.

“We have to be there when the customer arrives,” Cheesewright said.

LOOK AHEAD
Wal-Mart executives note ample growth opportunity as the population decline from recent years has stabilized at 1.2% annual growth in the past two years. The population of Mexico is young, which means there will be a demographic bonus of 10 million more adult consumers within the next five to 10 years. More women are also working, but that adds to household buying power, the executives said.

The retailer’s food and grocery business, and small store formats are performing well and there is a push to expand e-commerce toward general merchandise. The retailer launched general merchandise on e-commerce just this past summer.

Cheesewright said Walmex still sees potential pressure on profit margins from a new tax on high-calorie food and beverages, and an increase of value-added tax in border cities from 11% to 16%.

“We expect moderate improvement in the economy, driven by government investment and increased remittances from the U.S.,” he added.

Walmex execs also continue to look for alternatives to strengthen financial service products for customers. The retailer recently ended its relationship with BBVA Bancomer, who issued co-branded credit cards for the Walmex.

SAM’S TURNAROUND
Sam’s Club in Mexico represents 27% of Wal-Mart’s Mexican business, and 22% of Walmex overall which includes Central America.

The warehouse club reported negative 4.4% comps during all of last year losing sales among its Advantage members and its wholesale members. The retailer operates 156 clubs in Mexico and says there is room for more growth.

There are major changes under way to win back Sam’s Club shoppers throughout Mexico, according to the company. Execs with the retailer said they will focus on price, excitement, bulk and quality for Advantage members who shopped elsewhere last year.

Sam’s Club said it lost sales to department stores, competitor clubs, and drug stores last year because it did not meet shopper expectations. Going forward Sam’s said it is focused on treasure hunt excitement as well as luxury and fresh consumables — bakery, deli and Sam’s Cafe.

The retailer plans to leverage it’s relationship with Sam’s Club U.S. to work more exclusively with top brands in apparel, food and luxury. Lastly, Sam’s Club Mexico is relaunching its e-commerce site, something that is sorely needed, the executives said.