Wal Mart

Wal-Mart Stores Inc in Retailing World
January 2011
Scope of the Report
Retailing: Wal-Mart
Euromonitor International
Scope
This global company profile covers the following channels focusing on the year 2010 and their growth prospects:
Retailing
Store-based Retailing
Non-Store Retailing
Hypermarkets
Supermarkets
Discounters
Convenience Stores
Internet Retailing
Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies opinions, reader discretion is advised
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Retailing: Wal-Mart
Strategic Evaluation Competitive Positioning Geographic Opportunities Channel Opportunities Brand and Private Label Strategies Operations Recommendations
Strategic Evaluation
Retailing: Wal-Mart
Key company facts

Wal-Mart Stores Inc
Headquarters Regional involvement USA North America, Western Europe, Latin America, AsiaPacific Hypermarkets, supermarkets, discounters, mass merchandisers, warehouse clubs, Internet retailing 3.6% (2009) 3.6% (2010)
Low level of growth seen in 2010 due to poor US sales

As the largest global retailer, with a 3.6% share in 2010,
Major channel involvement World retailing value share
World retailing 2.2% (2009) 4.4% (2010) sales value growth
Wal-Mart has a considerable size advantage over its closest rivals and main challengers, including Carrefour, with a 1.1% share of world retailing sales in 2010, and Tesco, with a share of 0.8%. Wal-Marts retail sales growth in 2010 remained modest, suffering from difficult market conditions in the US, with the companys core customers seeing their disposable incomes curtailed by a slow economic recovery. While network expansion and sales increases were limited in North America in 2010, they continued at a robust speed in Latin America, notably Mexico.
Low sales growth but higher net profit

Wal-Mart's net sales rose by only 1% in the financial year to
January 2010, to US$405 billion. International sales measured in US dollars were undermined by the 400,000 16,000 appreciation of the US currency against other major currencies in 2009. However, net profit saw robust growth, 350,000 14,000 up by 7% to US$14.4 billion, leading to its net margin rising 300,000 12,000 from 3.3% to 3.5%. It benefited from higher productivity, inventory reductions and cost cuts, which were made 250,000 10,000 possible by stable or falling commodity prices. 200,000 8,000 Wal-Marts most direct global competitor, Carrefour, saw group sales fall by 1% in 2009 to just over 96 billion Net sales (US$134 billion). Its net profit shrank by 70%, to just under Net profit 0.4 billion (US$0.6 billion), hit by impairment charges and Note: Financial year end January. Latest year ends Jan. 2010 store refurbishment costs.
Net sales ((US$ million)
Net Sales vs Net Profit
Net profit (US$ million)
450,000
18,000
Retailing: Wal-Mart
2010 Q1-Q3 results: poor domestic sales but robust profits

Wal-Mart Stores Inc: Q3 2010 Results to October 2010
Net sales Q3 2010 Year-on-year growth (%) Net profit Q3 2010 Year-on-year growth (%)
330,000
Major gap between performance in the US and abroad

While the groups sales over the three quarters to October
US$101.2 million 2.6 US$3,590 million 10.2

11,000
Net Sales vs Net Profit Q1-Q3

Net sales Net profit
2010 increased by almost 3%, the gap between sales in the US and in other markets was marked, with almost static sales in the US contrasting with robust growth in emerging markets, notably in Brazil, China and Mexico. Domestic sales remained hindered by intense price pressure and poor consumer confidence, leading to a lower average transaction value, as consumers with lower than average incomes, who represent the core customer base, remain heavily affected by the uncertain economic climate in the US. These negative factors contributed to offset the positive trend in terms of footfall.
Net profit (US$ million)
Net profits show solid growth

Net profits recorded a strong increase of over 8% over the
Net sales (US$ million)
315,000
10,500
300,000
10,000
nine months period to October 2010, which boosted the net margin from 3.4% to 3.6%. This result was achieved thanks to strong cost control. This positive trend was confirmed in the quarter ending October 2010, which saw net profit growth exceed 10%.
Strong results for Mexican subsidiary Walmex

Wal-Marts Mexican subsidiary recorded strong double-digit
285,000
9,500
270,000 2009 Q1-Q3 2010 Q1-Q3
9,000
growth in sales and profits in the first half of 2010. While network expansion continued in Mexico, its sales were also boosted by the integration of activities in Central America. Its net margin remained well above 5%.
5
Retailing: Wal-Mart
SWOT Wal-Mart Stores Inc

Large size and global scale of operations scale of operations are key competitive advantages compared to rivals with more modest sales and profits. This gives the group stronger bargaining power and the ability to undertake acquisitions in developed and in emerging markets. Major reach in emerging markets and still growing in Latin America markets, especially in Mexico, WalMart has a strong presence in large emerging markets, such as Brazil and China and is set to become a large retailer in Africa. Dependence on mature and saturated markets emerging markets, WalMart remains overly reliant on mature markets in North America, the UK and Japan, in which its organic expansion prospects are limited. Saturation of large formats formats in terms of sales, hypermarkets and mass merchandisers, are facing saturation, and the group could struggle to adapt its business model to the operation of smaller grocery stores in developed markets.
Wal-Marts size and global In addition to a dominance
Despite rapid expansion in Wal-Marts two largest
Strengths Weaknesses Opportunities Threats

Format innovations to focus on smaller stores
Smaller store formats
Synergies and growth in emerging markets

Expansion prospects are
Internet retailers and dollar stores

The intense price
Companys brand image and CSR record

The Project Impact
significant not only in large emerging markets, such as Brazil, China and Mexico, but also in newly entered and future markets, such as India and South Africa. Closer global synergises between these markets are likely.
could enable Wal-Mart to target new consumer groups in metropolitan areas in North America. Its low-price credentials and expertise could give it a competitive edge in combining convenience and low prices.
pressure on non-food products created by powerful Internet retailers and dollar stores will continue to create a highly challenging environment for Wal-Mart, in which it will need to differentiate its offer to retain its profits.
programme failed to improve the perception of the stores environment among customers. In addition, Wal-Mart as a company still lacks trust in terms of its CSR record among local communities groups and unions.
6
Retailing: Wal-Mart
Key challenges: recovery of the US operations

Turning around the US operations following the disappointing results of Project Impact
Turning around the modest sales performance recorded
Achieving the balance between price and convenience in the US through smaller stores
As expansion opportunities in the US through its
in the US in 2010 at its hypermarket and mass merchandiser outlets remains the most pressing challenge for Wal-Mart. As prospects for network expansion in its core two channels are modest, sales growth will need to be achieved through a significant improvement in same store sales. Although the group continued to achieve stable profit margins at a high level compared to direct competitors thanks to its high level of efficiency, it could face growing difficulties in maintaining this solid result if the recovery of its sales growth in the US does not materialise in 2011. The measures adopted within the Project Impact, such as less cluttered stores and cutting the number of SKUs by up to 15%, failed to meet the companys objectives and forced a rapid revaluation in 2010. The decision to backtrack on the reduction of the branded product assortment and the reintroduction of the Action Alley central aisles, featuring promotions, in the second half of 2010 should enable Wal-Mart to increase US sales. However, Wal-Marts performance could remain hampered by the disaffection of some customers, who have deserted its stores in favour of rival retailers.
traditional large store formats are limited, without cannibalising existing outlets, Wal-Mart will increasingly attempt to open smaller outlets which can help it reach urban consumers in large cities, where it is underrepresented. However, Wal-Mart lacks expertise in operating a large chain of small stores in the US profitably, and would need to adapt its stores and product mix to compete effectively against the Kroger supermarket chain and the CVS and Walgreen parapharmacies/drugstores. Hence, it would most likely need to expand through acquisitions, which may require it to adopt a more flexible approach towards accepting staff unionisation if it is not to restrict its available options. In terms of price strategy, the recently renewed focus on every day low prices (EDLP) should also contribute to rejuvenate sales, as it will help the retailer focus once again on its core competitive advantage against rivals such as Target. Wal-Mart could benefit from widening the price gap with Target, which has become too narrow. However, as dollar stores have become more popular among a significant part of its customer base, they will continue to create a major competitive challenge for Wal-Mart, and create strong price pressure.
7
Retailing: Wal-Mart
Key challenges: more global scope and global synergies

International expansion: expansion in existing and future new emerging markets
Wal-Mart plans to allocate a higher proportion of its
Towards more efficient global operations and closer synergies between international activities
Generating more synergies between local subsidiaries
capital expenditure to international expansion in 2011 than in previous years, with a focus on emerging markets. Sales growth in these markets is expected to remain higher than that recorded in North America. Although the companys core markets for this global expansion drive will remain Brazil, China and Mexico, newly entered and future new markets should acquire an increasingly prominent role. Following the market entry in India in 2010, through cash-and-carry outlets, Wal-Mart is set to expand further through other channels if this is allowed by local regulations. The likely entry into South Africa and other African markets, with the purchase of a majority stake in Massmart expected to be completed in the first quarter of 2011, represents a major new departure and is also indicative of a more ambitious acquisition strategy to enter new markets. These may include other markets in Asia such as Indonesia, and the company stated that it would not rule out entering the Russian market.
will remain a major objective for Wal-Mart in order to adopt best practices derived from various international operations. One aspect of this strategy is shown by the integration of Walmart Centroamerica, which operates in Central American markets including Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, into the Mexican subsidiary Walmex at the end of 2009. The strong performance and the estimated high level of profitability recorded in Latin America by the groups small grocery retailing formats could inform the strategy to diversify towards similar store formats in North America. For the Seiyu operations in Japan, modest sales growth prospects will continue to make recovery an arduous task. This will require major cost-cutting in order to increase the chains profitability, while improving the chains image. If Wal-Marts efforts in this difficult market deliver positive results, some elements of its strategies could also be replicated outside Japan. In terms of global sourcing, such synergies should contribute not only to reducing costs but also to give a greater prominence to the groups private label strategy through an emphasis on direct sourcing.
8
Retailing: Wal-Mart
Competitive Positioning
Retailing: Wal-Mart
Major expansion in emerging markets drives robust growth

Over the 2006-2010 period, Wal-Marts sales growth benefited from continued expansion in major emerging markets,
most notably Brazil, China and Mexico. In the US, store network expansion remained aggressive until 2008, and subsequently slowed down significantly in a recessionary economic climate. Wal-Marts expansion in emerging markets continued aggressively between 2006 and 2010, both organically and through acquisitions. Hence, its sales increased at a faster pace than Carrefours both in Asia-Pacific and in Latin America, and faster than Tescos in Asia-Pacific.
Retail Value RSP excl Sales Tax US$ Year-on-Year Growth (%)
16 12 % y-o-y growth 8 4 0 -4 -8 -12 2006 Retailing 2007 2008 Wal-Mart Stores Inc 2009 Carrefour SA Tesco Plc 2010
A C
A While Wal-Marts sales were

boosted by network expansion in the US, Carrefour and Tesco recorded a stronger performance thanks to rapid growth in emerging markets and the appreciation of the euro and sterling against the US dollar.
B The appreciation of the US

dollar compared to other major currencies in 2009 contributed to Wal-Marts strong sales growth against its main global rivals, despite a modest performance, marked by disappointing domestic sales.
C Both Carrefour and Wal-Mart

recorded strong growth in Latin America in 2010, which offset stagnation in their respective domestic markets, France and the US. Tescos sales in the UK showed greater resilience.
10
Competitive Positioning
Retailing: Wal-Mart
Competitive context: Wal-Mart largest among global players

Retailing Top 15 Companies by Value, 2007-2010
4-year 2007 2008 2009 2010 trend Wal-Mart Stores Inc 1 1 1 1 Carrefour SA 2 2 2 2 Tesco Plc 3 3 3 3 Seven & I Holdings Co, Ltd 4 4 4 4 Schwarz Beteiligungs GmbH 7 5 6 5 CVS Caremark Inc 12 10 5 6 Walgreen Co 11 12 8 7 Costco Wholesale Corp 8 8 7 8 Target Corp 5 6 11 9 Aldi Group 9 7 10 10 Kroger Co 10 11 9 11 Auchan Group SA 15 9 12 12 Rewe Group 16 14 13 13 Royal Ahold NV 13 15 14 14 Home Depot Inc, The 6 13 15 15 Company
Note: 2010 provisional data
Wide global reach for Wal-Mart and top 2010 % four largest retailers
Other major US retailers show mixed performances
share The worlds four largest retailers, Wal-Mart, 3.6 Carrefour, Tesco and Seven & I, all benefited from the large scale of their 1.1 operations in order to allocate major 0.8 resources to the expansion of their global 0.8 reach, notably in emerging markets. 0.6 Wal-Marts larger domestic market 0.6 compared to the other retailers contributed to the group reaching and retaining the 0.6 number one spot. 0.6 Seven & Is number four position was driven 0.6 by expansion across Asia. In 2010, it also 0.6 benefited from the strength of the Japanese 0.6 yen against the US dollar. 0.6 Several smaller European retailers with a broad international presence compete 0.5 against Wal-Mart in some countries. Among 0.5 them, Auchan and Schwarzs rankings 0.5 benefited from a broad reach in emerging markets, in contrast to Aldi and Royal Ahold, which rely on more mature markets.
The two major health and beauty specialist retailers in the US, CVS Caremark and Walgreen, have seen their
ranking rise, helped by aggressive network expansion and an ageing population. However, US retailers operating in other channels and competing more directly against Wal-Mart, such as Target and Kroger, recorded more modest performances between 2006 and 2010, with limited or no store network expansion.
11
Retailing: Wal-Mart
12
Geographic Opportunities
Retailing: Wal-Mart
Global presence in emerging markets becomes broader

Domestic US sales accounted for 75% of Wal-Marts global sales in 2010. This proportion has gradually decreased
since 2005, when it stood at 79%. Due to the larger size of its home market compared to other global retailers, WalMarts reliance on domestic sales is higher than for Auchan (42%), Carrefour (46%) and Tesco (64%). Outside North America, the majority of Wal-Marts sales derive from emerging markets, most notably China and Mexico. Wal-Marts global reach is set to be extended to 14 new markets in sub-Saharan Africa, with the acquisition of a controlling stake in the South African retailer Massmart, which is expected to be concluded by March 2011. This would give the retailer a presence in over 30 markets, a number matching that of Carrefour.
Wal-Mart Stores Inc Retailing Presence and Growth Prospects by Market Retail Sales rsp Excl Sales Tax
9 8 7 6 5 4 3 2 1 0 -1 -2 0 China Brazil Guatemala Mexico Chile Canada Argentina United Kingdom Japan 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 % CAGR 2009-2014
USA
Market Size 2010 (US$ million)
Bubble size shows company sales (2009). Range displayed: US$1,046 311,979 million
Key Point: Thanks to high levels of profit and cash flow, Wal-Mart could benefit from acquiring local retailers in other fast-growing emerging markets. Following its likely entry into sub-Saharan Africa, it may opt to acquire retailers in large markets such as Indonesia, Turkey and Vietnam, for example.
13
Retailing: Wal-Mart
International operations outperform growth in the US

Similarly to its major global competitors Carrefour, Seven & I
and Tesco, Wal-Mart seeks to reduce its reliance on its mature domestic market by expanding more rapidly in emerging markets. Wal-Marts projected capital expenditure for 2011 shows that the company will continue this strategy.
Share of Value Sales
100% 75% 50% 25% 0%
Retail Value (US$ mn)
More outlets outside the US than in the US in 2010

For the first time in its history, Wal-Mart had more stores in
Share of Store Numbers
foreign markets than in the US at the end of 2010. This is mostly the result of continued aggressive expansion in Latin America, notably in Brazil and Mexico. Between 2004 and 2010, Wal-Mart expanded rapidly in emerging markets. While this mostly involved organic growth, the company also acquired local retailers to enter new markets in Central America and Chile.
2004 2005 2006 2007 2008 2009 2010 USA 100% 75% 50% 25% International operations
Sites/Outlets
Faster growth for non-US outlets than for non-US sales

The proportion of outlets outside the US grew significantly
0% more rapidly than the share of foreign retail sales over the 2004 2005 2006 2007 2008 2009 2010 2004-2010 period. This reflects the fact that non-domestic USA International operations expansion, especially in emerging markets, is more focused on small store formats with Capital Expenditure Detail (US$ billion) comparatively modest sales per Segment Actual Projected outlet, such as discounters in Latin America. By contrast, WalYear to Jan 2010 Year to Jan 2011 Year to Jan 2012 Marts store network in the US Walmart US 6.6 7.5-8.0 7.5-8.0 remains focused almost entirely on larger stores, notably mass Walmart International 3.8 3.5-4.0 4.0-4.5 merchandisers. Sam's Club US 0.9 ~1.0 ~1.0 14
Retailing: Wal-Mart
US: stalled sales growth, but solid margins in 2010

Sales growth stalled in 2010 as Wal-Marts Project Impact failed to deliver results
Wal-Marts sales growth in the US stalled in 2010. Its
US Walmart Brand Quarterly Sales Growth vs Operating Margin

5.0% 4.0% 3.0% %sales growth 2.0% 1.0% 0.0% -1.0% -2.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Operating margin 15
aggressive price strategy was the main factor boosting its share against Target and other rivals perceived as more premium in late 2008 and 2009, but as the US economy entered recession and consumers increasingly became cost-conscious, its Project Impact programme failed to keep this momentum in 2010. After having taken some branded products off its shelves in order to reduce SKUs and give more prominence to its private label range, as part of the programme, Wal-Mart had to backtrack and reintroduce some brands as it lost some footfall and average ticket. Surveys have indicated that customers were often critical of the perceived lack of choice and low quality in some non-food product categories. In a similar way to Target, Wal-Mart is increasing its focus on fresh food, which should allow the retailer to improve results by increasing the frequency of its regular shoppers' visits.
-3.0%
Q1 to Q2 to Q3 to Q4 to Q1 to Q2 to Q3 to end end end end end end end Apr July Oct Jan Apr July Oct 2009 2009 2009 2010 2010 2010 2010
0.0%
Operating margins remain high
Comparable stores sales growth without fuel Operating margin
As a testimony to Wal-Marts sound track record in curbing costs, increasing productivity and making efficiency gains
through global sourcing, its operating margins remained stable, despite lower sales. It also continued to exceed the operating margins recorded outside the US, thus showing the groups ability to benefit from its larger scale of operations. This performance suggests that if Wal-Mart succeeds in turning around its sales performance, its margins are likely to increase.
Retailing: Wal-Mart
US: expansion to focus on urban areas and smaller stores

Penetrating large metropolises: Wal-Mart adopts a more flexible approach
Following an agreement with the Chicago City Council, reached in July 2010, to change zoning laws, Wal-Mart will
be allowed to build a second store in the city, located in a deprived South Side area, with a selling space of 14,000 sq m. This agreement, which involved discussions with union leaders, could pave the way for more stores in the city, including smaller units. In New York City, despite earlier setbacks and continuous opposition from community groups over the negative impact of Wal-Mart stores on the local retail landscape and low employee wages, Wal-Mart is attempting once again to obtain planning permission to open new outlets, with plans for smaller stores of around 3,000 sq m. Los Angeles is another large metropolis where Wal-Mart has a limited presence and which it is increasingly targeting.
Testing new smaller store concepts

The testing of a new parapharmacy/drugstore format offering food ranges at a campus site in Arkansas is set to start
in January 2011. It illustrates Wal-Marts intentions to pursue new growth opportunities in a rapidly growing channel, in which two major US retailers, CVS and Walgreen, expanded rapidly between 2005 and 2010. As both retailers increasingly compete directly against grocery retailers, especially convenience stores and supermarkets, Wal-Mart could benefit from expanding through a similar concept with smaller selling spaces. The decision announced in the second half of 2010 to close the four Marketside stores tested in Phoenix, Arizona illustrates the difficulties for Wal-Mart in adapting its store model profitably to small urban locations, notably with the challenges of frequent deliveries and more fresh food. Although the retailer faced unfavourable economic conditions in Arizona in 2009 and 2010, ending the trial at this stage shows a lack of commitment which is at odds with an initially aggressive long-term objective to have 1,000 outlets when the concept was unveiled.
A&Ps demise changes competitive landscape in East Coast States

The bankruptcy of Tengelmanns A&P chain in December 2010, as it failed to integrate the Pathmark chain that it
acquired in 2007, is set to lead to some consolidation in the supermarket channel in the east coast US. While Delhaize and Royal Ahold, which have a stronger presence in the region, are among the most likely potential bidders for some of A&Ps outlets, Wal-Mart may also take this opportunity to venture into smaller formats and increase its share in supermarkets. Key Point: Acquiring regional supermarket chains would help Wal-Mart increase its presence in smaller formats.
16
Retailing: Wal-Mart
Canada: Supercenter expansion as Wal-Mart outgrows rivals

Major network expansion continued in 2010
Wal-Mart continued to expand more aggressively
Canada Retailing Company Shares (by GBO) Retail Value RSP excl Sales Tax
% value share
9 in Canada than in the US in 2010, as the latter 8 market is more saturated. 7 Wal-Mart continues to focus on its Supercenter 6 5 hypermarket format in Canada for its network 4 expansion, while it closed some more of its mass 3 merchandiser outlets in 2010. It developed its 2 presence in Western Canada with the opening of 1 its first two hypermarkets in the Saskatchewan 0 Province early in the year. Newer stores are George Weston Empire Co Ltd Metro Inc Wal-Mart around 10% smaller on average than existing Ltd Stores Inc ones. 2007 2008 2009 2010 In addition to new store openings, the company revamped existing stores, as part of a C$500 Intense price wars in 2010 largely instigated by Wal-Mart million investment programme in 2010. Wal-Mart played a significant role in the deflationary trend for Target to open first stores in Canada but food prices seen in Canada in 2010, as it embarked on a wide not before 2014 price reduction campaign in the first quarter. This covered around 10,000 items in the Western Provinces, including on basic food Target confirmed in October 2010 that it intends items. Although Wal-Mart has a strong image in terms of offering to enter the Canadian market to challenge WalMart directly. However, with plans to open its first low prices, it has to contend with dollar stores. 10 stores in 2014 or 2015, Wal-Mart will have a The competitive pressure from dollar stores was exacerbated by stronger presence in Canada by then and Target the success of the variety store chain Dollarama. In addition to could struggle to make a significant impact on strong store network expansion, the retailer significantly widened the Canadian retail landscape. its reach since it started offering products priced at C$2 in 2009.
Key Point: Unlike in the US, Wal-Mart does not operate supermarkets in Canada through its Walmart Neighbourhood banner, which could offer major growth opportunities locations where large formats are not suitable.
17
Retailing: Wal-Mart
UK: offsetting reliance on saturated hypermarket channel

Wal-Marts hypermarkets lose ground to two main rivals in 2010
In the hypermarket channel, which accounted for
88% of the groups UK sales in 2010, both Sainsbury and Tesco outperformed Wal-Marts Asda chain in 2010. Although Wal-Mart recorded a robust performance during the recession in 2008 and 2009, thanks to Asdas low price positioning, it failed to capitalise on this positive trend once the UK economy started to recover. It lost ground to Sainsbury and Tesco rivals with a more premium positioning which both succeeded through a focus on budget private label ranges with a strong value for money positioning, complemented by a wide assortment of premium private label.
40 % value share 36 32
United Kingdom Hypermarkets Company Shares (by GBO) Retail Value RSP excl Sales Tax
28
24 20 Wal-Mart Stores Inc 2007 Tesco Plc 2008 2009 J Sainsbury Plc 2010
Acquisition of the Netto chain gives new expansion potential but brings new challenges
The acquisition of the Netto discounter stores in May 2010 will allow Wal-Mart to focus on smaller formats and to
offset the lack of expansion prospects for hypermarkets, as it seeks to replicate the strategy successfully implemented by Sainsbury and Tesco. However, Wal-Mart lacks the experience of small grocery retailing formats in the UK. As it will embark on the rebranding of the Netto stores as Asda in 2011, and will increase the stores product assortment from around 2,000 to 10,000 items. However, it will face a major challenge in implementing a profitable strategy for these stores. Of the 193 stores acquired, Wal-Mart will sell around 30. Although the chain will still give the group a significant foothold in the supermarket channel, it will remain a modest supermarket operator, and its progress could be undermined by the Netto stores often being located in secondary locations compared to most of Sainsburys and Tescos smaller stores, which located on high streets.
18
Retailing: Wal-Mart
Mexico: strong expansion across several channels

Aggressive expansion and low price positioning help Wal-Mart strengthen its lead
Mexico is Wal-Marts third largest world market after the US and the UK, and accounted for around 6% of its global
sales in 2010. Wal-Mart's Mexican operations are highly profitable and efficient, with higher net margins than for the group as a whole, which led to ongoing expansion at a steady pace, despite poor economic conditions, and helped the company strengthen its position as the countrys largest retailer. While the increased value of the US dollar against the Mexican peso in 2009 undermined sales when expressed in US dollars, with double-digit growth in local currency terms, this currency factor did not apply in 2010, and sales recording rapid growth when measured in both currencies. The low price perception of Wal-Marts chains enabled the group to weather the poor economic conditions. An aggressive pricing strategy to widen the price gap with its closest competitors continued to help Wal-Mart maintain sales growth and to outperform its main rivals in 2010.
Focus on the expansion with the discounter chains

Wal-Marts store network continued to expand rapidly in
2009 and 2010, especially in grocery retailing channels. It expanded particularly rapidly through its two discounter banners, Bodega Aurrera and Mi Bodega Express, in 2009 and 2010. These target low-income consumers including those who traditionally rely on informal channels. The group also maintained the pace of its network expansion under the Wal-Mart hypermarket banner. Wal-Marts expansion was more modest in non-grocery retailing channels, which were particularly severely affected by the economic crisis, especially clothing and footwear specialist retailers, among which Wal-Mart is the largest operator with the Suburbia chain. However, the company continued to increase its presence with the Sams Club warehouse club chain at a steady pace.
Mexico Retailing Company Shares (by GBO) Retail Value RSP excl Sales Tax
12.5 % value share 10.0
7.5
5.0 2.5 0.0 2005 2006 2007 2008 2009 2010 Wal-Mart Stores Inc Organizacin Soriana SA de CV FEMSA (Fomento Economico Mexicano SA de CV) Controladora Comercial Mexicana SA de CV - CCM 19
Retailing: Wal-Mart
Latin America: expansion in Brazil alongside smaller markets

Favourable economic and demographic conditions boost sales in Brazil; Wal-Mart gains share
In 2010, Wal-Mart expanded strongly in Brazil, its second largest market in Latin America after Mexico. The groups
expansion was more aggressive than that of its rival Carrefour, with investments of around US$1.2 billion and an estimated US$700 million respectively. Carrefours difficulties in hypermarkets, with exceptional costs likely to reduce its profits by over 500 million (US$700 million), should ensure that Wal-Mart strengthens its position as the largest player in the channel. While strong growth in its main channel, hypermarkets, allowed Wal-Mart to cement its leadership over its two main rivals, Carrefour and Casino, sales increased even faster at its discounter chain Todo Dia, which attracts shoppers with low incomes. Brazils economy has remained resilient during the global economic crisis, boosted by stable financial institutions and increased revenues from commodity exports, and its economic growth prospects remain solid. Thanks to these positive factors, and helped by government initiatives, the proportion of the population belonging to the lowest income categories has been reduced sharply, and these consumers increasingly have enough disposable income to be targeted by Wal-Mart. This, combined with a rising young urban population, offers Wal-Mart major network expansion opportunities.
Growth prospects in Central America and Chile

Wal-Marts growing presence in smaller markets in
Central America and in Chile also contributed to increase its dominant position in Latin America in 2010. The integration of the Central American operations Walmart Centroamerica into the Walmex division, based in Mexico, announced in December 2009, will allow the group to create closer synergies between its various Latin American markets and to apply the expertise of the Mexican subsidiary in these new markets. Wal-Mart plans to invest US$300 million in 2011 to expand in Chile.
6 5 4 3 2 1 0
Latin America Retailing Company Shares (by GBO) Retail Value RSP excl Sales Tax
% value share
Wal-Mart Stores Inc
Casino Carrefour SA Cencosud SA Guichard2007 2008 Perrachon SA 2009 2010 20
Retailing: Wal-Mart
China: focus on smaller formats and potential acquisitions

Growth still strong for multinational hypermarket players
China accounted for over 2% of Wal-Marts global sales in 2010, compared to only 0.5% in 2005. In 2010, Wal-Mart
expanded at a similar pace to Auchan and more rapidly than both Carrefour and Tesco in the hypermarket channel. Auchan recorded particularly strong growth in 2010. The group expanded under the Auchan banner, with five new stores, as well as under its Taiwanese partners RT Mart fascia, with almost 30 new outlets. The relative saturation apparent in first-tier cities, and the rapid growth of domestic hypermarket operators, notably China Resources, is likely to lead to consolidation in this channel. This could compel Wal-Mart to gear its expansion strategy more towards acquisitions, alongside organic growth. Carrefour made such a move with the purchase of a majority stake in the Baolongcang chain, operating 11 supermarkets, in July 2010. Although it is a much smaller global rival to Wal-Mart in China, Tesco plans to speed up its expansion, with around 25 new outlets planned annually between 2010 and 2014. It also seeks to open small supermarkets or convenience stores competing against Carrefours Dia banner.
Wal-Marts future expansion through smaller hypermarkets

Wal-Mart plans to expand more rapidly in China through the rollout
China Hypermarkets Company Shares (by GBO) Retail Value RSP excl Sales Tax
of smaller hypermarkets. In December 2010, it opened its first Trust-Mart test store under the new format in the Jiangxi province, in Zhangshu, a city with a population of just over 500,000 inhabitants. This store format of between 3,000 and 5,000 sq m has a similar positioning to the discounter chains which the group operates successfully in Latin America, notably in Mexico. It should allow the retailer to target second-tier and third-tier cities, where the retail landscape is not saturated and where average incomes are considerably lower than in first-tier cities. Similarly, Carrefour has expanded rapidly in China through small stores under the Dia discounter brand, although these stores are several times smaller than Wal-Marts new concept and more focused on the residential areas of first-tier cities.
14 13 12 11 10 9 8 7
% value share
2007 2009
2008 2010 21
Retailing: Wal-Mart
Japan: Seiyu on a more assured path to recovery

Store closures lead to falling sales
Wal-Marts subsidiary Seiyu saw sales continued to decline in 2010, as it closed around 20 stores. In a saturated
market with a stable or declining population, organic expansion prospects are limited. Hence, Wal-Mart stated in early 2010 its intentions to expand its operations in Japan through acquisitions, in order to acquire a greater scale of operations.
Low price positioning brings positive results

With intense price competition and deflationary trends prevailing in the Japanese market, the competitive pressure
from rivals with a low price positioning strengthened. These included Aeons mass merchandiser chain Jusco, and Fast Retailing, with the clothing and footwear specialist chain Uniqlo. In this environment, Wal-Mart was a major player alongside Aeon and Fast Retailing in the sub-1,000 jeans wars, and also offered bento boxes for less than 300. With the Japanese economy still reeling from the effects of the global economic crisis, the Seiyu store concept with a strong discount positioning is increasingly accepted by customers, who are more willing to accept discounted imported products.
Reaching profitability through reduced costs

Seiyu recorded a net loss of 26 billion in 2008, the sixth consecutive year that Wal-Marts Japanese subsidiary was
loss-making. However, according to a statement issued by Wal-Mart Asia in November 2010, the Japanese division has since then achieved positive net profits. Seiyus parent company has implemented broad measures to improve productivity and has made more use of its global purchasing capability to source low priced items. The format of the Seiyu stores has been remodelled in order to adopt more elements of the US Supercenter outlets, as tested in the Seiyu Livin stores in Yokosuka in the Kanagawa Prefecture, which has led to reduced costs. The closure of some underperforming stores should help Wal-Marts Japanese operations to remain profitable. Beyond achieving profits, having a presence in Japan brings Wal-Mart other benefits, such as the opportunity to operate in a highly developed market which sets trends in terms of consumer lifestyles and fashion. The high level of innovation in retailing in terms of merchandising and services in Japan can also bring new ideas, which can be applied throughout the group.
22
Retailing: Wal-Mart
Middle East and Africa: acquiring a strong foothold

Channel presence
Game Variety stores CBW Cash and carry
Uganda
Game 1
1 1 1 1 1 2
Tanzania
Game
Ghana
Game 1 1 2 1 2 9 Total number of outlets (June 2010): 1-2 3-5 6 and over
Zambia
Game
Nigeria
Game
Malawi
Game
Namibia
Game CBW
Mozambique
Game
Swaziland
CBW
Botswana
Game CBW
Lesotho
CBW
Wal-Mart offered in November 2010 to purchase a majority stake of 51% in the South African retailer Massmart, for
R16.5 billion (US$2 billion). The acquisition would give the group access to a store network of over 250 outlets in South Africa, including around 80 cash and carry units under the CBW banner. In addition, Wal-Mart would gain a broad presence in Southern Africa, covering 13 markets, which would rival the two large South African retailers with a broad international reach, Pick 'n Pay and Shoprite. Although Massmart is a smaller retailer than these two operators, it has high profit margins, which makes it an attractive target for Wal-Mart. In these markets, with strong economic prospects, the lack of a modern retail infrastructure would enable Wal-Mart to have a major competitive advantage over local rivals.
23
Retailing: Wal-Mart
Recent and future market entries: large emerging markets

Following market entry into India in 2010, Wal-Mart is set to continue exploring possible new market entry
opportunities in large emerging markets, notably in several large Asian markets, as well as in Russia and Turkey.
Major ambitions in India

Indian legislation on foreign direct investment is likely to be amended in 2011, allowing foreign retailers to fully own
multi-brand retail chains. As Wal-Mart is actively lobbying the Indian authorities to push for a change in the FDI legislation, this shows the strategic importance of the Indian market for the company. Hence, it is likely to be at the forefront among international retailers in taking advantage of the new opportunities once the market opens. Wal-Mart has already acquired a Wal-Mart Stores Inc Potential Future Market Entries foothold in the Indian market Market Likelihood Pros and Cons of entering the market through a cash and carry chain of entry called Best Price Modern Indonesia Medium Pros: Large market with a rising urban population. A Wholesale, under a partnership retail landscape which remains fragmented. with Bharti Enterprises. With five Cons: Difficulty in acquiring critical size and building a outlets at the end of 2010 and network of local suppliers. around 10 new ones planned for Low Pros: A sizeable middle class in first-tier cities and a 2011, Wal-Mart is rapidly building Russia well-established modern retailing landscape. a major presence, matching the Cons: Difficult logistics, rapidly changing regulations and long-established player Metro, endemic corruption create high risks. Strong and has taken a lead over competition from aggressive large local retailers. Carrefour, which only opened its Vietnam Low Pros: Strong economic growth and low cost of entry. first outlet in New Delhi in Fragmented market with modest competition. December 2010. Cash and carry Cons: Distribution infrastructure and consumer lifestyles sales are set to grow rapidly not well adapted to big box retail formats. alongside modern retailing Turkey Low Pros: Young urban population and growing middle class. formats such as hypermarkets Consumers exposure to modern retail formats. and Wal-Mart is likely to adopt a Cons: Intense competition from international players, dual approach to exploit growth including Carrefour, Metro and Tesco. opportunities in the market.
24
Retailing: Wal-Mart
25
Channel Opportunities
Retailing: Wal-Mart
Wal-Mart increasingly focuses on hypermarkets globally

The hypermarket channel accounted for 67% of the groups retail sales in 2010, a similar proportion to Carrefours
(61%). The share of hypermarkets in Wal-Marts total sales has increased significantly from 57% in 2005, as the group rebranded stores into the Supercenter banner in North America, while the mass merchandiser channel simultaneously saw its share of retailing sales halve from 26% to 13%. In emerging markets, the hypermarket format was that most used for expansion, alongside warehouse clubs. The groups discounter presence is confined to Latin America, but may in the future may be expanded to other emerging markets, especially China. While supermarkets accounted for only 3% of group sales in 2010, this proportion is likely to increase, as its expansion in North America is likely to be geared increasingly towards smaller grocery retailing formats. Wal-Mart has made significant inroads into Internet retailing, which accounted for almost 1% of its global sales in 2010. Among its direct rivals, only Tesco achieves a greater proportion of its retail sales through Internet retailing.
14 12 % CAGR 2010-2015 10 8 6 4 2 0 -2 0
Wal-Mart Stores Inc World Retailing Presence and Growth Prospects by Channel Retail Sales rsp excl Sales Tax
Internet Retailing
Warehouse Clubs Discounters Variety Stores Mass Merchandisers 250,000 500,000 750,000
Hypermarkets
Supermarkets
1,000,000
1,250,000
1,500,000
1,750,000
Channel size 2010 (US$ million)

Bubble size shows company sales in this channel (2010). Range displayed: US$862-277,465 million
26
Retailing: Wal-Mart
Hypermarkets: smaller formats; repositioning in the US

The hypermarket channel is likely to remain a key growth driver for Wal-Mart, not only in the US but also in emerging
markets. Although it competes in this channel directly against operators with a strong share in the channel, such as Auchan in China, Carrefour and Casino in Latin America and Tesco in the UK, this is in sharp contrast to the US, where its two main competitors, Meijer and Target, have a small presence in hypermarkets, with shares of only 5% in 2010.
Challenging conditions in the US and strategic blunders undermine sales

Sales at hypermarkets remained lacklustre in Wal-Marts domestic market in 2010. Network expansion was reduced
significantly compared to previous years, and the group focused its efforts on improving its performance at existing stores, which was far from dynamic. Despite a major temporary price cut campaign in spring 2010, like-for-like sales at US outlets failed to recover, as Wal-Mart could not improve its price positioning against Target, and the company subsequently instigated a return to EDLP. As the Supercenters saw their SKUs cut by around 15% in 2009, footfall was negatively affected as customers no longer found key brands. Although Wal-Mart reacted by reintroducing delisted products in the second half of 2010, its performance in 2011 could remain negatively affected by this strategic blunder, as it will need to convince disgruntled customers to spend again at its stores. A low level of consumer confidence also impacted non-food sales in some categories, especially clothing and footwear. For these products ,Wal-Mart also failed to gain a competitive advantage over direct rivals, such as Target.
Smaller hypermarkets in the US and in emerging markets

In order to target metropolitan areas without cannibalising sales at its stores located in outer suburban areas, Wal-
Mart will continue to open smaller hypermarkets in the US of between 10,000 sq m and 15,000 sq m. It plans to open between 30 and 40 such outlets in 2011. However, the emphasis on smaller stores will see Wal-Mart increasingly focus capital expenditure on opening supermarkets in urban areas, in addition to small hypermarkets. In emerging markets, smaller stores so-called compact hypermarkets are increasingly used to expand in the suburbs of first-tier cities and in new second-tier cities with a lack of modern retail infrastructure. Based on the successful discounter chains in Latin America, such as Bodega Aurrera in Mexico, Wal-Mart may also choose to opt for hypermarkets with a strong discount positioning in China or other emerging markets.
27
Retailing: Wal-Mart
Warehouse clubs: modest US sales growth for Sam's club

Modest performance in the US for Sams Club; Project Portfolio hints at improvement
The warehouse clubs channel generated over 12% of Wal-Marts retail sales in 2010. The US market accounted for
84% of Wal-Marts global sales through warehouse clubs. US sales remained subdued in 2010, following modest growth in 2009, and domestic expansion remained limited. 10 underperforming stores were closed. Wal-Mart expects to improve Sams Clubs sales in the US through a store revamp, as part of the Project Portfolio programme rolled out at around 100 outlets in 2010. It features a product mix giving more prominence to food and drinks, as well as beauty products, in categories which are seen as highly profitable and in which it has major scope to increase its members average ticket. The chain focuses on premium products, private label ranges and added services in order to differentiate its offer in these product categories and increase membership numbers. At 3.2% in the financial year to January 2010, Sams Clubs operating margin is somewhat lower than that of the whole Wal-Mart group. This gap has remained constant for several years, and is unlikely to change significantly, which is likely to affect capital expenditure and network expansion negatively.
Costco: main global rival expanding in Australia and Taiwan

Wal-Marts presence in emerging markets in this channel relies
World Warehouse Clubs Company Shares (by GBO) Retail Value RSP excl Sales Tax
42.5 40.0 % value share 37.5 35.0 32.5 30.0 27.5 25.0 2005 2006 2007 2008 2009 2010 Costco Wholesale Corp Wal-Mart Stores Inc 28
mostly on its Mexican stores, which accounted for 12%of channel sales in 2010. In addition, it also has a small store network in Brazil and China. Costco also derives the majority of its sales from the US. Costcos international presence is focused on Asia-Pacific, where it has a stronger presence than Wal-Mart in warehouse clubs, with stores in Japan, South Korea and Taiwan. While it faces a degree of market saturation in South Korea, this is in contrast to Taiwan, where it plans to open new stores. Costco also operates in Canada, Mexico and the UK, as well as in Australia since 2009, where it has plans to increase its store numbers from one to 10 units in the long term.
Retailing: Wal-Mart
Internet retailing: strong presence in growing channel

A major Internet retailer in the US
As the fifth largest operator in Internet retailing
A key channel for Wal-Marts non-food strategy in the UK

The UK has the most developed Internet retailing channel for
Company Shares (by GBO) (US$ million)
2007
2008
2009
2010
Market Sizes % Year-onYear Growth
in the US in 2010, Wal-Marts operations in this grocery retailers among major European markets. As part of its channel are dwarfed by Amazon, but are rather ambitious strategy to match Tescos sales of non-food products by 2015, Wal-Marts Asda aims to record strong sales growth through larger than its direct competitors, such as Internet retailing. Asda announced in August 2010 that it would Costco and Target. Thanks to its efficient build a warehouse dedicated to its online orders in the Southeast logistics and major physical infrastructure, of England, in an area where its store network is not dense. In a including stores as convenient collection similar strategy to Tesco, Wal-Mart relies primarily on a store pickpoints, Wal-Mart competes effectively against up model to fulfil online orders, but the growing scale of Internet pure-play Internet retailers. retailing makes the building of dedicated warehouses more In order to compete more effectively against profitable. Amazon and eBay in terms of price and Emerging markets a new battleground for Internet retailing product choice, in 2009, Wal-Mart launched the Walmart Marketplace service open to third- Across emerging markets, the rise of a middle class with Internet party retailers. access will lead to a rapid surge in Internet retailing sales between World Internet Retailing Retail 2010 and 2015. Wal-Mart recorded rapid growth in Internet Value RSP excl Sales Tax retailing sales in Brazil in 2010, where it was an early entrant 4,000 30 among global players. Wal-Mart also has a significant and growing presence in Internet retailing in Mexico. However, it remains 3,000 20 absent or under-represented in other emerging markets. Rival Tesco stated in 2010 that it would expand into Internet retailing in 2,000 all emerging markets where it operates stores. The first markets 10 1,000 that it intends to cover are China, the Czech Republic, Hungary, Poland and Thailand, from 2011. 0 0 Key Point: Wal-Mart could test the use of Asdas UK Internet retailing operations as a stepping stone to enter other European markets without having to invest in opening physical stores.
29
Wal-Mart Stores Inc % growth
Tesco Plc
Retailing: Wal-Mart
30
Brand and Private Label Strategies
Retailing: Wal-Mart
Major brands: Wal-Mart dominates but local banners strong

Wal-Mart co-exists with wellestablished local banners Wal-Mart Stores Inc World Number of Outlets 2007-2010
2007 2008 2009 2010a Brand name Channel Markets Hypermarkets, Asia-Pacific, With the sheer size of its store Wal-Mart Supermarkets, Mass Latin America, network, especially in North Merchandisers North America America and Latin America, the Bodega Wal-Mart brand dwarfs the Discounters Latin America Aurrera group's other fascias, which Asia-Pacific, consist mostly of national Sams Club Warehouse Clubs Latin America, banners in Latin America. North America By retaining some local brands in Supermarkets, the majority of its markets, WalHypermarkets, Western Europe Mart is adopting a brand strategy Asda Variety Stores similar to Auchan but in contrast Seiyu Mass merchandisersAsia-Pacific to those rivals operating in most global markets through their Hypermarkets, single eponymous brands, such Supermarkets Bompreo Latin America as Aldi and Tesco, and, to a Parapharmacies/ lesser extent, Carrefour. Drugstores Operating local brands alongside Netto Discounters Western Europe Wal-Mart stores in emerging Mi Bodega Discounters Latin America markets helps the group Express differentiate each chain's Todo Dia Discounters Latin America positioning to refine its targeting. Pal Discounters Latin America The discounter chains Bodega Ekono Discounters Latin America Aurrera in Mexico, Despensa Despensa Discounters Latin America Familiar in Guatemala and Todo Familiar Dia in Brazil all benefit from a Trust-Mart Hypermarkets Asia-Pacific strong low-price perception. Note: a 2010 provisional data
4,148 4,333 4,500 4,696
317
703
346
723
555
722
778
727
341 315 195 0 0 21 111 0 97 101
358 374 206 0 96 39 122 0 109 103
372 371 233 0 133 92 127 110 113 104
384 354 284 197 167 145 134 130 119 104
31
Retailing: Wal-Mart
Wal-Mart: Project Impact fails to improve brands positioning

Brand Name: Wal-Mart
Geographic Argentina, Brazil, Canada, China, involvement Mexico, USA Categories Hypermarkets, supermarkets, mass merchandisers, Internet retailing World Wal-Mart in hypermarkets: 1st ranking (2009) 1st (2010) (2009Wal-Mart in mass merchandisers: 2010) 2nd (2009) 2nd (2010) World share Wal-Mart in hypermarkets: 27.9% (2009-2010) (2009) 27.8% (2010) Wal-Mart in mass merchandisers: 21.1% (2009) 20.6% (2010)
As Wal-Mart continued to convert its discount
Wal-Mart Brand Share (by GBN) Retail Value Sales Excl Tax 2010
China 2.0% Argentina 0.3% Brazil 0.9% USA 91.0% Mexico 2.2% Canada 3.5%
Project Impacts reassessment

The five-year Project Impact programme started in 2009, and
involves a revamp of the stores and changes in their product mass merchandiser stores into Supercenter assortment to improve the brands image, with fewer branded hypermarkets in Canada and the US in 2010, the products, more fresh food and lower shelves to give a more brands share in hypermarkets rose, while in premium feel. However, it saw disappointing results in 2010. mass merchandisers it lost further ground to its Although margins have remained stable, thanks to lower costs main rival, Target. and reduced inventory, helped by cuts in the number of SKUs, The difficulties encountered by Project Impact in the low overall sales growth prompted Wal-Mart to reassess the increasing sales at hypermarkets make it more programme in 2010. urgent for the group to explore growth The more premium feel of the store also contributed to the more opportunities through other formats, notably price conscious groups in Wal-Marts core customer base supermarkets, which would enable the group to increasingly migrating to dollar stores. The largest player, Dollar target new store locations. General, expanded rapidly in 2009 and 2010.
32
Retailing: Wal-Mart
Private label (US): Project Impact setback prompts rethink

Wal-Mart Stores Inc Private Label in the US (excludes Sams Club) New private label ranges
Standard Products Premium Sams Choice Organic/ Fairtrade Sams Choice Fair Trade Health and Wellness Non-food ranges
As part of its attempt to increase
Equate (beauty Parents Choice products), MidMarketside, Ol Parents Choice (children beauty George (clothes, priced Roy (dog food) (children food) products, food) homeware), Hometrends Faded Glory Economy Great Value (basic clothes)
Project Impact: poor results lead to realignment of private label strategy

As part of the Project Impact programme, Wal-Mart gave greater visibility to
its private label ranges in US stores, notably for its Great Value range. The Sams Club: bridging the gap latter, which featured more prominently on store shelves, saw around 750 with Costco items, mostly food, being reformulated in March 2010, out of over 5,000 SKUs. However, this plan met with disappointing results, and in the wake of Sams Club is also focusing on declining monthly sales, Wal-Mart had to correct this strategy in the second increasing private label sales, which half of the year, as the delisting of branded products alienated customers accounted for only around 13% of its and threatened to damage its relationships with key suppliers. sales in 2009, compared to an estimated 20% for warehouse club Hence, although Wal-Marts strategy to raise private label sales is set to rival Costco. Its two main ranges are continue, being driven by new and updated ranges and by using private Members Mark, for private label as a means to put pressure on branded product manufacturers to keep consumer members, alongside prices low, the company will become more cautious in pushing these Bakers and Chefs for foodservice. products at the expense of brands.
private label sales at its US stores by broadening their positioning, WalMart test launched the Marketside food range in 2009. Although it takes its name from the soon to be closed supermarkets tested in Phoenix, Arizona, the chilled food and ready meals range, with a premium positioning, will survive the stores. Some Sams Choice items have been rebranded as Marketside. Within non-food products, it launched in 2010 the Hometrends range, comprising furniture and homewares.
33
Retailing: Wal-Mart
Private label (UK): Asda ranges lead the way globally

Wal-Mart Stores Inc Private Label in the UK
Standard Products Premium Mid-priced Economy Organic/ Fairtrade Health & Wellness Non-food ranges Asda Extra Special, Locally Asda Organics, Asda Produced Fairtrade Asda Chosen by You, Great Stuff (childrens food) Asda Asda Free From Asda, George (clothes)
Company sources state that around half of Asdas sales are derived from private label products, which illustrates the
maturity and the broad acceptance of private label among consumers in the UK.
Asda refocuses on premium ranges

Asdas ranges were hindered in 2010 by a relative lack of popularity of its premium products. The company reacted
by reintroducing a wider offer of premium private label in food and non-food ahead of the Christmas season in 2010, as its offer in this price segment was seen by customers as lacking depth compared to Sainsbury and Tesco. Asdas low price ranges saw stronger competition in 2010, not only from its traditional major competitor Tescos discount range, but also from retailers with a more premium positioning, such as Sainsbury and the John Lewis Partnership (Waitrose), whose budget private label ranges were successful.
Asdas products sold outside the UK

As the UK has a more developed private label market than Wal-Marts other markets, especially in terms of premium
ranges, Asda's experience can be leveraged and used as a model to increase private label sales globally. Asdas private label ranges are used as a basis to create more global synergies for private label. The Asda Extra Special range has been successful at Mexican stores, and a selection of products are sold at Seiyu outlets in Japan. Among non-food private label ranges, the UK-based George clothing label is also popular in Mexico.
Chosen by You scheme to increase interaction with loyal customers

Under a successful scheme launched at the end of 2009, Asda sought to increase its customers involvement with
product development. Chosen by You items are tested by some shoppers and selected variants are later launched.
34
Retailing: Wal-Mart
35
Operations
Retailing: Wal-Mart
More global sourcing and direct sourcing to reduce costs

Sourcing strategy with a more global scope
At the end of 2010, Wal-Mart operated three global sourcing offices in the US, in addition to 13 located in
international markets. Wal-Marts sourcing strategy has become more global in scope, in parallel with the company expanding its global presence, in order to achieve cost savings. Hence, the company is developing the use of its five Global Merchandising Centers, three of which are managed by its US divisions, one in Mexico focused on emerging markets and one in the UK for the non-food George products.
More focus on direct sourcing

Wal-Mart also increasingly purchases goods directly from product manufacturers rather than third-party companies,
in order to achieve lower costs. It plans to raise the proportion of products sourced directly from around 20% to 80% over a five-year period. The head of US operations, Eduardo Castro-Wright, indicated in 2010 that achieving this objective this could lead to an overall cost reduction of between 5% and 15%. Direct purchasing is increasingly used in selected product categories, such as clothes ,as well as fruit and vegetables, in North America and Mexico. Due to the greater prevalence of direct sourcing in retailing in Europe than in North America, the experience of the UK subsidiary Asda in using procurement offices for fresh food can be used as a model for the group. Following the acquisition of the procurement business International Produce Ltd (IPL) in 2009, Asda further boosted its direct sourcing for food. At the end of 2010, this was extended to wine. In China, in an attempt to control its supply chain more closely, Wal-Mart has developed Direct Farm projects. The first one in Shanghai, which was the 63rd in China, was launched at the end of 2010, working in collaboration with 12,000 local farmers. Similar strategies are implemented in China by Carrefour and Seven & I.
Private label expertise to be more global

As Wal-Mart seeks to make better use of its international expertise in order to apply on a global scale some of the
strategies that have seen positive results in one market, this also applies to its private label strategy, for example for the UK-based non-food range George, which is expanding in other global markets.
36
Retailing: Wal-Mart
37
Recommendations
Retailing: Wal-Mart
Key recommendations
New store formats: adapting strategy for smaller stores
As Wal-Mart seeks to expand into
Internet retailing: more efficient operations and innovations
Emerging markets: acquisitions and new partnerships

Wal-Marts expansion in emerging
The growth in Internet retailing is smaller grocery formats in North expected to remain a pervasive America, to offset the saturation of trend in retailing in all developed its larger traditional formats, it will markets, especially for non-food need to make major adjustments to products. its strategy in terms of logistics and As a retailer with a major Internet supply chain. Hence, it would gain retailing presence, Wal-Mart should from acquiring existing chains with focus on innovations and product the expertise to operate these stores choice to remain ahead of direct profitably. competitors, and not be left trailing Such an approach could also by pure play Internet retailers subsequently be used in Japan, Amazon and eBay. where small grocery channels are This could include expanding likely to outperform large-scale various click-and-collect services, formats. such as same-day pick-up, tested The outcome of the integration of since October 2010, innovating in Netto in the UK will also be a key terms of website design and test for Wal-Mart to gain expertise in focusing on applications for mobile operating a large-scale small format devices. chain in a mature market. Wal-Mart has the resources, Small grocery retailing formats with alongside its distribution and a marked discount positioning, logistics expertise, to create close based on the successful discounter cross-channel synergies, helping to chains in Mexico, could provide a make the company a leading player sound basis for wider expansion in Internet retailing. beyond Latin America.
markets is set to be given a major boost with the purchase of a majority stake in the South African retailer Massmart, which operates grocery retailing chains across subSaharan African markets. With Wal-Marts profits far exceeding those of its direct rivals, it could continue acquiring retailers to venture into selected new emerging markets offering strong economic prospects, a large population and a relative lack of direct competitors. In existing markets, including Brazil and China, acquiring regional chains would increase its presence in second-tier and third-tier cities. To enter small new emerging markets, Wal-Marts global reach could also be driven by the creation of franchise agreements with local partners, using a similar model to that of Carrefour in the Middle East and Africa.
38
Retailing: Wal-Mart
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Wal Mart

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Wal-Mart Stores Inc in Retailing World

Scope of the Report

Key company facts

Low level of growth seen in 2010 due to poor US sales

Major channel involvement World retailing value share

World retailing 2.2% (2009) 4.4% (2010) sales value growth

Low sales growth but higher net profit

Net Sales vs Net Profit

Net profit (US$ million)

2010 Q1-Q3 results: poor domestic sales but robust profits

Major gap between performance in the US and abroad

US$101.2 million 2.6 US$3,590 million 10.2

Net Sales vs Net Profit Q1-Q3

Net profits show solid growth

Net sales (US$ million)

Strong results for Mexican subsidiary Walmex

270,000 2009 Q1-Q3 2010 Q1-Q3

SWOT Wal-Mart Stores Inc

Wal-Marts size and global In addition to a dominance

Despite rapid expansion in Wal-Marts two largest

Strengths Weaknesses Opportunities Threats

Synergies and growth in emerging markets

Internet retailers and dollar stores

Companys brand image and CSR record

Key challenges: recovery of the US operations

Key challenges: more global scope and global synergies

Major expansion in emerging markets drives robust growth

A While Wal-Marts sales were

B The appreciation of the US

C Both Carrefour and Wal-Mart

Competitive context: Wal-Mart largest among global players

Other major US retailers show mixed performances

Global presence in emerging markets becomes broader

Market Size 2010 (US$ million)

International operations outperform growth in the US

Share of Value Sales

100% 75% 50% 25% 0%

Retail Value (US$ mn)

More outlets outside the US than in the US in 2010

Share of Store Numbers

Faster growth for non-US outlets than for non-US sales

US: stalled sales growth, but solid margins in 2010

US Walmart Brand Quarterly Sales Growth vs Operating Margin

Operating margins remain high

Comparable stores sales growth without fuel Operating margin

US: expansion to focus on urban areas and smaller stores

Testing new smaller store concepts

A&Ps demise changes competitive landscape in East Coast States

Canada: Supercenter expansion as Wal-Mart outgrows rivals

UK: offsetting reliance on saturated hypermarket channel

Mexico: strong expansion across several channels

Focus on the expansion with the discounter chains

Latin America: expansion in Brazil alongside smaller markets

Growth prospects in Central America and Chile

Wal-Mart Stores Inc

Casino Carrefour SA Cencosud SA Guichard2007 2008 Perrachon SA 2009 2010 20

China: focus on smaller formats and potential acquisitions

Wal-Marts future expansion through smaller hypermarkets

Japan: Seiyu on a more assured path to recovery

Low price positioning brings positive results

Reaching profitability through reduced costs

Middle East and Africa: acquiring a strong foothold