Wal-Mart considers move into Russia

/ Source: The Associated Press

Wal-Mart Stores Inc. is moving closer to a possible expansion into Russia with the appointment of an experienced European executive to scope out possibilities in a vast retail market worth more than $140 billion a year in food sales alone.

The world’s largest retailer, which has been weighing a Russia move for some time, on Monday named German retailing veteran Stephan Fanderl as president of Wal-Mart Emerging Markets-East to “explore retail business opportunities in Russia and neighboring markets.”

Fanderl, a German citizen, had been a board member at German retail and travel company Rewe Group, where he was responsible for its supermarkets and “hypermarkets”, large stores that combine groceries and general merchandise. Fanderl left Rewe last May.

Wal-Mart Chief Executive Lee Scott told analysts in October that Bentonville, Ark.-based Wal-Mart wants to open in Russia, although he did not provide a timeline.

At the same meeting, Mike Duke, head of Wal-Mart International, reiterated its commitment to international growth despite losses in Japan and the sale of its German and South Korean businesses in 2006 after years of losses there.

Duke said an increasing share of that international growth will come from developing countries. Wal-Mart’s business includes developed nations such as Britain and Canada but most of its 13 countries are developing markets, including Mexico, Central America, Brazil, Argentina, China and India.

Fund manager Patricia Edwards said Wal-Mart needs to look at Russia to fuel overall growth as its U.S. business, still about three-quarters of sales, is no longer growing as fast.

“The number of big countries that can really move the needle of Wal-Mart sales globally is limited,” said Edwards, who helps manage $14.8 billion in assets including 544,069 Wal-Mart shares at San Francisco-based Wentworth, Hauser and Violich.

Wal-Mart’s international sales were $90.6 billion last year, or 25 percent of total sales. But international grew by 17 percent from the previous year compared to 6 percent growth at Wal-Mart U.S. stores.

Edwards said Fanderl’s appointment “signals Wal-Mart is getting more serious and really looking for places they can go.”

Russian food retail sales totaled $141 billion in 2006 and were projected to grow by 12 percent a year through 2010, according to research by investment bank UBS. But the top five retailers accounted for just 8 percent of those sales, meaning the market is splintered between many small operators and potentially ripe for consolidation by larger chains, the 2007 study noted.

UBS analyst Neil Currie wrote in January that he expects Wal-Mart to move into Russia within two years, probably starting with a minority stake in an existing retailer and then expanding from that base.

Former Wal-Mart executive Michael Bergdahl, who frequently travels in Russia as a consultant and business speaker and writes about how to compete with Wal-Mart, said that Russian retailers he talks to are convinced Wal-Mart will move in sooner or later.

“Wal-Mart will not go into Russia alone. It is likely that Wal-Mart will use the name of the company it acquires,” Bergdahl said.

Bergdahl said rumors are rife in Russia of repeated visits by Wal-Mart teams in the past year and supposed talks with established retailers. A Wal-Mart spokesman declined to comment on any activities other than the appointment of Fanderl.