| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Watch Out Europe: Here Comes Wal-Mart A big deal in Britain makes European retailers tremble It's Wal-Mart's biggest international move yet. When the giant Arkansas retailer announced a $10.7 billion deal for Britain's third-largest supermarket chain, Asda Group PLC, on June 14, its rivals couldn't help but take notice. Indeed, shares of British supermarket chain Tesco PLC plunged 6.7%, while J. Sainsbury PLC's fell 4.7%. "This is a nightmare for a lot of retailers in Europe," says Michael P. Godliman, director of Verdict Research, a London-based retail consultancy. Already, analysts and store owners alike are predicting a wave of consolidation. The expansion of Wal-Mart Stores Inc. (WMT) --with its cheap prices, buying clout, and efficient inventory and distribution systems--only adds to the competitive pressures facing retailers thanks to Europe's new single currency. If Wal-Mart's acquisition goes through, it will double the company's international sales to $25 billion--some 17% of annual revenues--in one swoop. And the Asda purchase will give Wal-Mart a second leg on which to build a Continentwide business, adding to the two German chains it acquired in the last two years. Indeed, the company has set its sights on becoming a leading cross-border retailer in Europe. Wal-Mart wants a third of its growth over the next five years to come from international operations. So far the company has entered Europe by targeting two of its top three consumer markets. Wal-Mart has avoided the third big market, France, where hypermarkets such as Carrefour pose tough competition. The Asda deal, says Wal-Mart Senior Vice-President for Finance Jay Fitzsimmons, ''gives us critical mass in Europe without having to go head to head with Carrefour.'' As it grows further, Wal-Mart plans to turn to suppliers across the Continent for its goods, giving it a better selection at lower cost. BIG PLANS. To expand Continentwide, though, Wal-Mart will have to adapt its formula to local market realities. Wal-mart snapped up Asda because it follows policies on pricing, employee relations, and customer service similar to its own. Still, the largest Asda stores, which are big by British standards, are just over a third the size of Wal-Mart's U.S. outlets. Big store locations are hard to come by in much of Europe. Says Fitzsimmons: ''What we learn from Asda about smaller spaces could help us with our expansion plans.'' Wal-Mart has already gone up the learning curve in Germany. Since Wal-Mart moved into Germany in 1997, it has put in place widened aisles and brought over sophisticated computer systems to turn around its two chains of German stores. They now number close to 100, with total sales of $3.5 billion last year. In building its German business, Wal-Mart has slashed prices on 1,500 lines by an average of nearly 20%. That has helped heighten competition and speed consolidation in German retailing. Nikolai Baltruschat, analyst at Deutsche Bank Research, says stores representing 25% of hypermarket sales in Germany have been sold in the past two years. At the same time, Wal-Mart is changing some of its ways. For instance, the company may have to rethink its concept of having greeters at stores to welcome customers. ''Germans are skeptical. Customers said that they didn't want to be paying the salary of that guy at the door,'' says Baltruschat. Wal-Mart also found that some of the services it offers in the U.S. are highly restricted in Germany, such as loyalty cards. And while Wal-Mart can't operate 24-hours a day in Germany as in the U.S., it has moved up its opening time to 7 a.m. It's likely to take years for Wal-Mart to turn itself into a true Europewide company. More acquisitions are probably in the cards. Indeed, the era of consolidation in European retailing is just beginning. Michael Jary, director of OC&C Strategy Consultants in London, predicts that in 10 years, roughly 10 big cross-border retailers will dominate Europe. Today, four or five leading store chains rule the business in each country. As the euro opens up new possibilities, Wal-Mart will play its part in the remaking of European retailing. By Heidi Dawley in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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