Inside This Issue - News
Walmart global push
September 19th, 2011
NEW YORK – Walmart’s international business is thriving and growing faster than any other part of the giant retailer’s operations.
But opportunities remain to hone performance and improve returns, division president and chief executive officer Doug McMillon told investors at the Goldman Sachs Global Retailing Conference here recently.
While the flagship Walmart U.S. division remains by far the biggest source of sales and profits, International has grown enormously since its creation in 1991. With sales of nearly $110 billion last year, the segment generated about 26% of the retailer’s top line and around 20% of its profits.
Walmart views growth in four dimensions, McMillon explained. The first, and also the top priority, is comparable-store sales, which generally are considered the best indicator of a retailer’s performance and health. Second is organic new-store growth, followed by e-commerce and multichannel retailing. The fourth and final dimension is acquisitions.
"From an M&A [mergers and acquisitions] point of view, we want to build scale in some of our existing markets, ‘muscling markets’ like China and Brazil, but also markets like Japan, where our scale isn’t sufficient to accomplish everything we want from a returns point of view," McMillon explained.
In terms of driving comparable-store sales growth, the division has two main areas of focus, he added. First is Everyday low prices (EDLP), long the cornerstone of Walmart’s competitive strategy, and the second is upgrading the ability of its merchants. To accomplish the latter goal the division is creating merchants academies to teach basic principles of merchandising within the Walmart philosophy.
McMillon acknowledged that EDLP has yet to be implemented in a number of regions of Walmart International, including China and Brazil, which he described as the division’s most important markets.
EDLP, McMillon explained, delivers a number of benefits. "By moving to EDLP, we smooth the business, and as that smoothing happens, we can take cost out," he said. "We don’t have the inventory markdowns related to high-low, we don’t have the labor to move product around to fit an ad. Because of the inventory spikes that come with high-low, we get damages and accidents, more shrink because of the amount of price changes. So by moving to EDLP, we can take inventory-related costs out."
Implementing EDLP is not a slam dunk, however, particularly in such markets as Brazil, where consumers are accustomed to an intensely promotional environment. In fact, EDLP has taken longer to win acceptance in Brazil than McMillon expected, and it has yet to be introduced in China. "China has not converted to EDLP yet and won’t this year," he said. "We’re working with that team to develop our timing and our approach, based on learning from Japan and Brazil and other markets."
While Brazil has experienced rapid growth and offers scope for more, it also presents some unique challenges, he noted. Brazilian consumers rely so heavily on credit to buy goods that interest payments eat up their disposable income. "We had an operating model that was not sustainable," he said. "We had done too much high-low activity. We hadn’t built customer trust, and we hadn’t converted to the Walmart EDLP approach, which helps us build trust, improve our in-stock levels and get our costs down."
While operations in such markets as the United Kingdom, Mexico and Canada benefit from sound business processes, others — notably Brazil and China again — present big opportunities to leverage Walmart’s expertise in such areas as procurement, information technology and process engineering.
Earlier this year the division created a global process team that is taking best-in-class processes and helping the country teams understand how to adopt and drive them, McMillon said.