Welcome to Wal-World
march to conquer the globe
by Andy Rowell
Multinational Monitor magazine,
"Country by country, the world is
discovering the great value of shopping at Wal-Mart," says
John Menzer, president of the international division of Wal-Mart,
the world's largest retailer. Menzer's vision is one where WalMart
becomes a global brand, just like McDonald's or CocaCola, monopolizing
the global retail market.
People in the United States may be used
to the sight of Wal-Mart in their communities, but not so the
rest of the world. But all that is about to change.
Wal-Mart is already a huge player-by far
the world's largest retailer, standing 3.5 times as big as the
second largest retailer, Carrefour. Now the company is employing
an aggressive policy to expand its international operations and
to dominate the markets where it operates.
Wal-Mart has over 300,000 workers outside
the United States. Seventeen percent of the company's sales of
some $41 billion now comes from international operations. This
year, the company plans to open or expand 115 international stores
in seven countries, with an additional 113 next year.
Why the international push? "We need
to be the growth of Wal-Mart some day when the United States slows
down," says Menzer. "The United States is 37 percent
of the world's economy, which leaves 63 percent for international.
If we do our job, international operations should someday be twice
as large as the United States. That's a big challenge, but that
is the opportunity in front of us."
The trouble for Wal-Mart is that its U.S.
operations are slowing down, as the market slowly becomes saturated.
The company has no choice but to expand rapidly abroad. As Business
Week explains: "Its culture and stock price are built on
the expectation of double-digit sales and profit gains year after
year." Although there is still room for expansion in the
United States, it is getting increasingly hard for the company
to record double digit returns. In the United States, although
the company opens a new store every 42 hours, it is also suffering
from soft sales, rising inventories and languishing sales at its
famous Sam's Club division.
Wal-Mart moved abroad in the early nineties.
First came strategic countries in the Americas: Mexico in November
1991, then Puerto Rico nine months later. Canada came next in
November 1994 and Argentina and Brazil a year later, in November
By August 1996, Wal-Mart had moved into
Jakarta, through a licensing agreement, though the company left
Indonesia within two years, following the Asian financial crisis.
Also in 1996, Wal-Mart moved into China. Later, in 1998, the company
moved into the European market in Germany. South Korea came next
in July 1998 and then the UK in July 1999. Three years later,
it bought its way into the Japanese market too. By July 2003,
Wal-Mart International had over 1,300 units abroad.
Wal-Mart's first international expansion
was the opening of Club Aurrera, a smaller version of Sam's Club,
in the suburbs of Mexico City as a joint venture between Wal-Mart
and Mexico's leading retailer, Cifra. Wal-Mart later acquired
the controlling interest, and in February 2000 Ciftra changed
its name to WalMart de Mexico.
One person who has watched Walmart's march
to global domination is Al Norman, the founder of Sprawl-Busters
who has been described by CBS's "60 Minutes" as the
guru of the anti-Wal-Mart movement. "What Wal-Mart did in
Mexico was very instructive," says Norman. "Mexico was
the testing ground for the method of operation. They basically
acquired existing stores. They moved into Mexico and that became
the theme in other countries, like the UK, Germany and Japan.
They would buy into an existing operation, rather than start from
The strategy of corporate takeover puts
the company at an advantage when it enters into a new market.
First, a large competitor is eliminated, and second, Wal-Mart
gains real estate and employees, and a massive presence in its
targeted location. More importantly, by taking over existing stores
rather than new ones, it avoids the community opposition that
it faces in the United States in one of its three new stores -led
by the likes of Al Norman. What opposition the company has faced
overseas has been from unions over low pay, regulators over predatory
pricing and small businesses that face financial ruin.
Although in the United States sprawl has
become synonymous with Wal-Mart, this is not so overseas, because
Wal-Mart by and large has taken over existing supermarkets rather
than opened up new stores. However, looks can be deceptive. The
nature of Wal-Mart's business is such that sprawl and out-of-town
development is an inevitable consequence. Wal-Mart's "pile
it high, stack it cheap" mentality works best where the store
is big, so there is lots to sell. The bigger the store, the more
likely that it will be on the edge of town, driving development
When Wal-Mart opened its first superstore
in the UK, it was on the outskirts of Bristol, with a parking
lot to fit 1,000 cars. As only four buses a day go to the store,
the majority of people are forced to drive. "Everything will
change now," says Binal Patel, who ran a small community
grocery and post office, just down the road from the new store.
"I have lived in the U.S., so I've seen what happens. Everyone
starts driving to do their shopping, increasing the amount of
traffic on the roads. In a few years time, the intense competition
will have caused all the local shops to close down."
So a spiral of sprawl begins. The out-of-town
supermarket closes the local in-town stores, so more people drive
out-of-town, forcing more in-town shops to close. The more successful
out-of-town shops are, the more others shops want to relocate
out of town, too. Indeed, UK government research has shown that
out-of-town supermarkets have a serious impact on up to 50 percent
of in-town shops. Other research suggests that just one supermarket
costs on average 276 local jobs.
Wal-Mart also threatens small shops in
countries it does not even operate in. In 1998, the Irish government
adopted a cap on the size of stores. But companies like Swedish
furniture retailer IKEA and Wal-Mart are believed to be pressuring
government officials to lift the cap. The only place that such
large stores would be built would be out of town, creating sprawl.
"Any country that has predominantly smaller stores will be
shocked by the superstore format," argues Al Norman.
Just as Wal-Mart exports sprawl, it exports
its bad labor practices. Uni-Commerce, the global trade union
for commercial workers, characterizes Wal-Mart as "an obsessively
anti-union company at home and abroad." The company "builds
its competitive advantage on low wages, poor benefits and a squeeze
on producers. Through predatory pricing, it can force both large
and small competitors out of business," according to Uni-Commerce.
"Worldwide, Wal-Mart is the most serious threat to employment,
wages and working conditions in commerce."
The problem with low pay and unions is
one of the main obstacles the company faces in its international
expansion plans. The rift between unions and Wal-Mart is said
by financial analysts Fallstreet.com, to be "intensifying
with each global step the company makes."
The fight is likely to get worse as Wal-Mart
dominates more and more markets. What Wal-Mart did in Mexico should
serve as a warning to other countries, argues Norman. "Wal-Mart
today controls 50 percent of the grocery sales in Mexico, which
is just staggering. The idea that a foreign company would control
half of the grocery sales in Mexico must be a source of enormous
frustration to local retailers. Someone's been hurt, of course
you have a lot of casualties. "
At the end of 2002, Wal-Mart was operating
some 608 units in Mexico under a variety of names: Bodegas, Suburbias,
Superamas and VIPS. The company also had 62 Supercenters, and
46 Sam's Clubs. Such power was worrying the authorities. Last
year, the Mexican Federal Competition Commission became concerned
that Wal-Mart was using its market share to pressure its suppliers
to lower their prices to the retail chain. In March 2003, the
agency insisted that Wal-Mart agree to a new "code of conduct"
for dealing with its suppliers. The country's biggest three competitors
in Mexico have now joined forces to try and fight Wal-Mart, but
even combined they are still considerably smaller than Wal-Mart.
FINDING ITS FOOTING
After Mexico, Wal-Mart's next move was
into Puerto Rico in 1992, where the government tried to block
WalMart's purchase of a local supermarket chain, arguing that
it violated antitrust laws. "The local retailers are complaining
that Wal-Mart has a stranglehold," says Norman, who has visited
the country twice, having been invited by a union of small businesses
to assist in their fight against Wal-Mart. In 2002, Wal-Mart purchased
35 Supermercado Amigo supermarkets. "There was a fight to
prevent them acquiring Amigos, but the Wal-Mart/Amigo combination
gives them a very strong hold there in terms of market share,"
The next major strategic advance by the
company was into Canada in 1994. Wal-Mart entered by buying 122
ailing Woolco stores. Since then, Wal-Mart's Canadian stores have
experienced eight years of consecutive growth of both sales and
profit. By 2003, the company was operating some 200 stores. In
January, Wal-Mart announced that it was going to introduce its
warehouse "Sam's Club" concept to Canada, in what is
seen as a shake-up of the retailing landscape in Canada. Eventually,
there could be as many as 60 Sam's Clubs in Canada, and even the
introduction of WalMart super stores.
Wal-Mart surprised the retail industry
by buying the 21-unit Wertkauf chain in 1998 in Germany, its next
big move. It was seen as defying analysts' predictions that the
German market was too mature, with thin margins and sluggish sales
and space too limited to entice the company, especially compared
with what was seen as the greater revenue potential of the emerging
The German market has not been easy for
Wal-Mart. Business analysts from the Institute of World Economics
and International Management at the University of Bremen call
Wal-Mart's German entrance strategy "nothing short of a fiasco"
that leaves the company with a "bleak" future in Germany.
Business Week says that "many of the wounds were self-inflicted"
as "Wal-Mart failed to understand Germany's retail culture,
the regulations that can add five years or more to the launch
of a new hypermarket, and the stiff competition among some 14
hypermarket chains in a stagnant market."
In 1999, Wal-Mart's losses were estimated
at 400 million German marks or almost $200 million, twice that
expected The company also fell afoul of the regulators in 2000
when the company's "Always Low Prices" were found to
be too low by the German Cartel Office. The Cartel Office found
that Wal-Mart-along with other supermarket chains- were selling
staples such as milk, butter, flour and cooking oil below cost
on a regular basis, an illegal practice. "To me, it'. more
about seeing that independent companies are no pushed out through
the unjust pricing strategy of big companies with superior market
strength," said Ulf Boege, president of the Cartel Office.
The company is also in trouble with the
German unions. In July 2000, Wal-Mart workers in Germany went
on strike to force the company to join the collective agreement
for commerce. Union action including strikes continued, and in
the summer of 2002, Germany's largest trade union, the Unified
Service Sector Union, known as Verdi, once again warned the company
that it would not give up before a collective agreement has been
signed. Finally in November 2002, in what was seen as a major
success for the union, WalMart announced that it would recognize
and apply the German collective agreements for commerce.
In Germany, the company's expansion plans
have also run into trouble. The company had declared that it wanted
to add another 50 hypermarkets to its German store network. But
an attempt to lay its hands on Metro's Real hypermarket chain
failed when the major shareholders refused to sell.
GOBBLING THE UK
The German experience did not stop the
company from 1 moving into another major European market, the
UK. The strategy was the same-to buy an established player. In
the UK, Wal-Mart took over Asda in June 1999 and now has some
259 stores and 19 depots across the UK.
Insiders say that the two companies were
a perfect match. In fact, Wal-Mart is now importing Asda's clothing
line. George, into its U.S. stores. "The Asda culture was
modeled on Wal-Mart," says one ex-employee. When two UK businessmen,
Archie Norman and Alan Leighton, took over the company in the
late eighties, they visited Wal-Mart in the United States and
took the model back to the UK. "The best parts of the Wal-Mart
culture were stolen and existed within Asda before Wal-Mart came
along" the former employee continues. "The worst parts
have been brought in after wards."
In the UK, Wal-Mart has announced plans
for 10 to 12 new stores per year, with the company hoping "to
create in excess of half a million square feet of new retail floor
space per annum for the foreseeable future."
Friends of the Earth criticized the company
in July 2003 for planning to put 40 mezzanine floor extensions
around the country. These are internal second floors that are
suspended above the existing floor, giving added floor space,
without the need for planning permission. "The scope for
uncontrolled expansion is considerable and could make a mockery
of national planning guidance which seeks to protect town center
shops, local communities and the local environment," argues
Friends of the Earth's Tony Juniper.
Privately, Wal-Mart plans to become the
biggest food retailer in England by 2005, surpassing current market
leader, Tesco's. This goal cannot be met by growth alone, so it
means acquisitions. Asda is in the bidding to buy Safeway -currently
the fourth largest food retailer. If this effort fails, many believe
Asda will bid for the rival company Somerfield -currently number
six on the list. "Safeway makes sense for us," says
one Wal-Mart insider. "It's all about being able to expand
in parts of the UK where our model is not yet available."
Asda, whose vans have just been resprayed
to say "part of the Wal-Mart family," makes much of
its commitment to communities, its workforce and to the environment.
Former employees say the slogan is a sham. "I expected to
find an organization that valued its colleagues and I didn't,"
says a former manager at Asda's head office.
"I found an organization that valued
the greenback above anything," the manager continues. "It's
not a good employer if you look at the number of people at Asda
House who leave. They have a very high turn-around of staff, as
they don't look after people. They talk massively of the concept
of a 'work-life balance,' but when you actually want to take a
bit of life out of your work, you are told you are not allowed
to do it. The policies are all in place, but the whole thing is
The manager also believes that Asda's
pledges on the environment and on being committed to UK agriculture
to be "cynical and hollow. It was about the PR that came
with the pledges, not the delivery. It's nauseating. They are
destroying local shops as they go. We know this. You can't replace
local shops with a little bit of local sourcing. " Despite
these concerns, Wal-Mart looks set to dominate the UK market.
ONWARD TO CHINA
In Asia, the company also looks set for
further expansion, despite setbacks in South Korea. A joint U.S./Korean
academic study of Wal-Mart's operations found that shoppers were
not "impressed" with the company. "Wal-Mart's South
Korean operation has chosen bad locations, set prices too high
and had a poor selection of merchandise," the study found.
Asia Times also noticed how the company "failed to realize
that no matter how cheap Wal-Mart products are, South Korean housewives
do not go a long distance to shop or purchase food lacking freshness."
But difficulties in South Korea have not
stopped WalMart's Asian expansion. In March 2002, Wal-Mart announced
a draft agreement to purchase 6.1 percent of the stock of Seiyu,
a Japanese retail chain. This followed an unsuccessful attempt
to acquire an even larger retailer, Mycal. Seiyu operates 400
stores located throughout the country; Wal-Mart is entitled to
increase its ownership to 66.7 percent over time.
In China, the company opened its first
outlet in the southern city of Shenzhen in 1966. But its important
move came in July 2003, when the company opened its first store
in Beijing, having already opened some 22 stores in other parts
of the country. Analysts have noted that Wal-Mart, which is already
the single largest buyer of Chinese products (if Wal-Mart were
a nation, it would be China's eighth-largest export destination),
is set to rapidly become one of the biggest sellers to Chinese,
"I think we'll do well," says
Wal-Mart President for Asia Joe Hatfield. Indeed, the company
is already said to be changing consumer patterns. People are changing
from a daily trip to the local market where local fresh food is
sold to a weekly visit to the Wal-Mart store to buy packaged goods.
So Wal-Mart's inexhaustible march goes
on. In July 2003, Wal-Mart was said to be interested in buying
the Brazilian, Argentine and Peruvian units of Dutch retailer
Ahold. Analysts believe that Wal-Mart's next target market will
be Australia, followed by further investment in Asia and China.
When Wal-Mart executives look at the globe,
they only see expansion. "The future ain't what it used to
be," WalMart Chairman David Glass told shareholders in June
2003, "It'll be a lot better."
This troubles Al Norman deeply. "In
five or six years, you could be talking about 5,000 to 6,000 Wal-Mart
stores outside of the United States," says Norman. "Wal-Mart
is Americanizing retailing around the world. It is a really undesirable
outcome both culturally and economically for a U.S. company to
be exercising so much power."
Andy Rowell is a UK-based freelance writer.
He is the author of, most recently, Don't Worry-It's Safe to Eat