Wal-Mart sees potential growth in Southeast Asia

purcha · Mon Oct 27, 2008 2:46 pm

HONG KONG: Wal-Mart Stores, the world's biggest retailer, is considering its first stores in Southeast Asia and expects to approach 10 percent growth in international sales to $100 billion this fiscal year despite a global economic slowdown.

The retailer, a perennial runner-up to Carrefour in China in terms of sales and stores, is enjoying a huge leap in market share as it proceeds with a $1 billion acquisition of a local chain, Trust-Mart, which is expected to be completed by 2010.

The U.S. retailer, which has about 2.1 million employees worldwide, is now looking to expand into Southeast Asia as American consumers are squeezed by a soft housing market and tighter access to credit.

"I foresee international will outpace the U.S. in terms of percentage of growth," Vicente Trius, the head of Wal-Mart in Asia, said. "We should be approaching the $100 billion mark this year for international."

Last month, Wal-Mart reported a 17 percent jump in second-quarter profit to $3.45 billion, after a 17 percent increase in international sales to $25.26 billion.

But the discount retailer forecast that results for the current quarter could miss Wall Street estimates as consumers worldwide deal with tough economic times.

Analysts said Wal-Mart's third-quarter outlook was lower than some expected and warned that tougher times could be ahead.

"Although the international business continues to expand its presence within Wal-Mart's operations, a drop in inflation rates or a strengthening dollar coupled with more difficult comparisons in the second half" of the fiscal year could start to slow the pace in sales growth that Wal-Mart had in the first half of the year, Credit Suisse analysts said in a research note.

The company opened its Asian regional headquarters in Hong Kong on Wednesday. The headquarters will oversee its business in Japan, India and China.

Wal-Mart, which operates more than 4,000 stores in the United States and 3,000 stores in 13 other countries, reported $90.6 billion in international sales in the last fiscal year, about a quarter of overall revenue.

The company operates 394 Seiyu stores in Japan and more than 200 stores in China. It also holds a minority stake in the Trust-Mart chain in China, which has 102 units, and has a joint venture with Bharti Enterprises in India.

Since 2002, Wal-Mart has invested about $2.2 billion in Seiyu, which remains unprofitable because of stiff competition. But Trius said Wal-Mart would not back out of Japan as it did in Germany and South Korea.

"No way," Trius said. "These country comparisons are completely wrong. Germany was a consolidated market, but Japan is still fragmented."

Wal-Mart's major competitors include Metro of Germany, Carrefour of France, Tesco of Britain and a host of local players in many countries.

Asked where else in Asia the discount retailer might expand, Trius confirmed that Vietnam, Indonesia and Thailand were all potential markets.

Wal-Mart, founded in 1962 and based in Bentonville, Arkansas, entered China in 1996, where it competes with international rivals and local competitors like Lianhua, Wumart and Times Ltd. for a slice of the country's $1.3 trillion retail market.

China, which makes many of the clothes, toys and other products that are sold by Wal-Mart worldwide, has seen inflation surge to its highest levels in 11 years.

But Trius said Wal-Mart expected that improved management of its supply chain would help offset inflationary pressures in China, where it directly sources $9 billion in manufactured products a year.

Shares in Wal-Mart have gained more than 25 percent this year, easily outperforming a 13.2 percent loss on the Dow Jones industrial average.

Wal-Mart sees potential growth in Southeast Asia

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