updated 3/29/2004 12:43:34 PM ET 2004-03-29T17:43:34

With 3,550 stores in the U.S. and 1,000 Supercenters to be added in the next five years, all that's left for Wal-Mart is mop-up. It already sells more toys than Toys "R" Us, more clothes than the Gap and Limited combined and more food than Kroger. If it were its own economy, Wal-Mart Stores would rank 30th in the world, right behind Saudi Arabia. Growing at 11 percent a year, Wal-Mart would hit half a trillion dollars in sales by early in the next decade.

But its mesmerizing success in the U.S. masks this fact: Overseas, Wal-Mart has won some — and lost a lot. Just a few victories have been swift: Canada, Mexico and the U.K. More than 80 percent of its international revenue comes from these three countries.

In Europe it has proven at times adept, at times inept, at acquiring. In China it struggles with a dauntingly primitive supply chain. In Japan it is taking rice-grain-size steps so as not to damage a powerful but backward retail ecosystem. It has achieved runaway success in Mexico, but stumbled among stronger competitors in the huge markets of Brazil and Argentina.

Some big blunders are behind it
Wal-Mart entered Hong Kong in 1994 and left two years later after screwing up merchandise selection and location. It entered Indonesia in 1996, but tucked tail soon after a Jakarta store was looted and torched during the 1997-98 riots. Wal-Mart lost hundreds of millions of dollars in Germany after trying to force its systems on two acquisitions. It has yet to click in South Korea, where its Supercenters misread local tastes and sit too far outside city centers.

One thing Wal-Mart has going for it — beside the fealty of suppliers and an $11 billion capital budget — is a distaste for making mistakes twice. Operations staff from 36 regions fly into Bentonville, Ark. to attend its famed 7:30 a.m. Friday meetings, which perform hours-long postmortems on what went right and wrong that week. The international crew joins that grueling powwow, too. "We're still very young at this, we're still learning," says John Menzer, chief executive of Wal-Mart International.

International is already the fastest-growing division, accounting for a fifth of revenue, or $47.5 billion — the size of Target — and a fifth of operating income (earnings before interest, taxes and minority interest), or $2.4 billion. Over the next three to five years, company Chief Lee Scott insists, sales from abroad must contribute a third of earnings and sales growth. It missed both targets last year, adding $6.8 billion to the company's overall increase of $26.7 billion in revenue and $372 million to the total $1.8 billion lift in operating income.

The Wal-Martization of the world is changing commerce around the planet, for good and ill. By importing so many goods from low-wage countries like China, it eliminates manufacturing jobs and depresses wage growth in the U.S. — and has the same effect in any country where it achieves significant density. But by selling goods for less, Wal-Mart raises living standards. It will create 800,000 jobs worldwide over the next several years, not to mention the labor needed to build the stores, parking lots and distribution centers. Yin and yang.

Bentonville has gotten a lot of flak for squeezing its U.S. suppliers to the point of asphyxiation. But for every casualty, there are successful upstarts like Orange Glo International. The family-run household products company in Greenwood Village, Colo. got picked up by Wal-Mart in 1998 and two years later went overseas. Wal-Mart gave Orange Glo a few pointers, urging it to make its tubs of OxiClean stain remover two inches shorter to fit on Japan's lower store shelves and to hire a full-time employee for floor demonstrations at the Sam's Club in Shenzhen, China. Orange Glo now ships U.S.-made goods to 11 countries; its sales have more than quadrupled to $400 million since 1999.

Sam Walton wasn't one to stare at a map on the wall and dream of conquest. He died in 1992, when Wal-Mart's global ambitions consisted of two Sam's Clubs in Mexico City. A year later Rob Walton, chairman, and David Glass, chief executive, asked Bob L. Martin, chief information officer, to forge abroad.

Martin went on a wild ride, mixing franchising, acquisition, virgin development and joint venture. When he retired in 1999, International had $12 billion in sales and $550 million in operating profit — and became the largest retailer in Canada and Mexico.

Time for a numbers wonk
John Menzer had been Wal-Mart's chief financial officer since 1995 and brought a passion for precision and planning. The 1999 acquisition of ASDA, then the U.K.'s third-largest grocer, was followed by two and a half years of careful technology integration and employee training. He wasn't about to repeat the chaos of the rushed acquisitions in Germany. Armed with four years' worth of studies and outlines of the Japanese market, Menzer took only a sip, spending $51 million for a 6 percent stake of the Seiyu chain in 2002. Seiyu's stock price more than doubled after the news broke, but Menzer had secured warrants to up its interest to 67 percent at a fixed price. He remembered how Wal-Mart had paid ever higher prices to add to its stake in Mexican retailer Cifra in the 1990s.

Menzer has ordered all his country presidents to make their own decisions in order to enact them faster. Each handles his own sourcing, merchandising and real estate. "Over time all you really have is speed. I think that's our most important asset," he says.

Some of Wal-Mart's labor problems have dogged it overseas. The largest union in Germany tried to get Wal-Mart to sign an industrywide collective bargaining agreement, but the retailer refused to sign any omnibus contract because it says its stores already had the terms in place. In China, where unions have little clout, Wal-Mart has refused to kick in the customary 2 percent of wages to the state-run labor councils, paying it instead into a fund for employees.

Competitors everywhere are bracing for a fight. Tesco, the U.K.'s biggest grocer, has opened superstores and added merchandise space faster than ASDA. The two largest retailers in China, Lianhua and Huilan, merged last year into one state-owned firm called the Bailian Group, with annual sales of $8 billion.

Where Wal-Mart goes next is a well-kept secret. Rumors swirl of buyout overtures to Italy's Esselunga chain, France's global giants Carrefour and Auchan, Japan's Daiei or Aeon. In plans kept hush until now, 40 Wal-Mart managers are convening in Russia in April to study trucking routes, distribution points, rival store locations, shopping habits. With stumbles along the way, this retail revolution will be exported to all corners of the globe.

© 2012


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