Bloomberg News

Wal-Mart to Push Low Prices for China Growth

April 12, 2012

People shop for meat in the re-opened Nanping West Road Wal-Mart Stores Inc. hypermarket in Chongqing, China. Photographer: Ariana Lindquist/Bloomberg

People shop for meat in the re-opened Nanping West Road Wal-Mart Stores Inc. hypermarket in Chongqing, China. Photographer: Ariana Lindquist/Bloomberg

Wal-Mart Stores Inc. (WMT:US), the world’s largest retailer, plans to push its everyday low price strategy in China and Brazil to accelerate international sales growth that is lagging behind competitors.

Wal-Mart’s Brazilian operations have been moving to an everyday low price strategy -- as opposed to using temporary sales and discounts -- and will start a similar push in China in the first quarter of next year, Doug McMillon, president and chief executive officer of the retailer’s international operations, said today at an investor presentation in Toronto.

Chief Executive Officer Mike Duke has been struggling to help the retailer expand its overseas operations as profitably as it does in the U.S. The international unit’s operating margin narrowed last year as its sales rose 15 percent. Bentonville, Arkansas-based Wal-Mart lost market share in Brazil and China and faces new challenges in mature markets such as Canada, where Target Corp. (TGT:US) is expanding.

“International is the future, and they’re not doing much,” Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York, said in a phone interview before today’s presentation. “China is barely profitable, and margins are going down.”

Everyday Low Pricing

Brazil’s conversion to everyday low pricing is well under way and has been encouraging, McMillon told investors. In China, it will take time because Wal-Mart still is envisioning how the strategy will work in that market, he said.

“The next market I am focused on walking across that bridge is China,” McMillon said. “My expectation is that, at the latest, we’ll start that the first quarter of next year.”

Wal-Mart expects everyday low pricing can differentiate its stores in Brazil, where retail typically includes sales and special offers, Kevin Gardner, a Wal-Mart spokesman, said in a phone interview. Wal-Mart made the conversion in Japan in 2008 and gained market share there last year.

Chief Financial Officer Charles Holley said last month that the overall retail market in China grew by 16 percent in Wal- Mart’s fiscal 2012 while the company’s sales there advanced 13 percent. In Brazil, sales increased 11 percent compared with a 5.6 percent gain for Wal-Mart.

The retailer said it posted market share gains in South Africa, Argentina, Chile, Mexico, Japan, Canada and the U.K.

‘Growth Engine’

Wal-Mart has said its international operations are its “growth engine” and it plans to add as much as 33 million square feet of store space in those markets this year.

The retailer also said it is going on the offensive against Target, which is entering the Canadian market with a goal of at least $6 billion in sales by 2017.

Wal-Mart is adding a record 73 stores in Canada this year at a cost of $750 million. The company also said in today’s presentation that it has a 11 percent price advantage on its competitors.

Canada’s sheer size and high transportation costs to deliver goods to remote areas also works against expanding e- commerce there, said Shelley Broader, president and CEO of Wal- Mart’s Canadian operations.

“What we need to do is say we’re already there,” Broader said. “We have an inherent advantage in our 18-year history, and we’re in every single area in Canada minus the northern territories.”

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • WMT
    (Wal-Mart Stores Inc)
    • $86.91 USD
    • 0.48
    • 0.55%
  • TGT
    (Target Corp)
    • $75.06 USD
    • 0.41
    • 0.55%
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