Walmart International focusing on existing markets

Thu Apr 12, 2012 4:26pm EDT

Employees stand in front of the gate to a Wal-Mart Supercenter in Chongqing municipality October 24, 2011. REUTERS/Stringer

Employees stand in front of the gate to a Wal-Mart Supercenter in Chongqing municipality October 24, 2011.

Credit: Reuters/Stringer

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(Reuters) - Wal-Mart Stores Inc is focused on improving results in China and other foreign countries where it already operates, rather than on entering new markets, its top international executive said on Thursday.

"Our focus this year in particular has been on improving returns with our existing businesses," Walmart International Chief Executive Officer Doug McMillon told investors and analysts at a meeting in Toronto that was also webcast.

Building on the success that Wal-Mart, the world's largest retailer, has had in markets such as Canada and the United Kingdom and moving past missteps in China and elsewhere are critical to its future.

While the bulk of Wal-Mart's sales and profit come from the United States, the international business is growing much faster, as many U.S. markets are already saturated with stores and the economy there remains sluggish.

Much of the meeting focused on Canada, where Walmart says it is now the fastest-growing retailer. The chain's rapid expansion is coming ahead of Target Corp's entry into that market.

Walmart plans to have 380 Canadian stores by the end of January, up from 333 now. The 39 Zellers discount stores it bought from Target -- which bought the leases from Hudson's Bay Co to break into Canada -- will be up and running for the holiday season. Target won't open any stores until the spring.

Walmart Canada also has been busy converting many of its outlets to "supercenters," which sell a wider array of grocery items than regular stores, along with general merchandise.

"Converting their traditional discount stores to supercenters enables Walmart to gain a bigger chunk of consumers' wallets and encourages more frequent trips," said Natalie Berg, director of global research at Planet Retail.

Walmart Canada claims that nine out of 10 Canadians shop at its stores, with 1.1 million customers a day.

Slightly more than half of the Canadian stores are now supercenters, and Walmart Canada CEO Shelley Broader said the chain had nearly doubled its share of the fresh food market over the last two years.

"We are in our infancy in the food business," she said.

Walmart's supercenter expansion has put pressure on margins at established Canadian grocers like Loblaw Cos Ltd, Metro Inc and Empire Co Ltd's Sobeys chain.

Walmart Canada checks prices on thousands of items versus more than two dozen chains and has seen the gap between its prices and higher prices elsewhere widen recently. It has an 11 percent price gap to the market, Broader said.

"Our strategy is to be the price leader," David Cheesewright, CEO of Walmart's EMEA region, said in an interview. "It's a relative position."

CHINA NEEDS WORK

Walmart is getting ready to move to an everyday-low-price model in China, taking cues from Brazil, where it already switched to that model, McMillon said. Other countries planning to switch to the "EDLP" model are Argentina, South Africa, India and Chile, he said.

Brazil's first-quarter results should have "some things that you'll be encouraged by," he said, without giving a forecast.

In China, some new stores have not been as strong as Walmart would like, he said. And last year, Walmart China dealt with a pork mislabeling problem that led to big leadership changes and the temporary closure of some stores.

"A lot of issues have been identified in China over the last few months," said McMillon. "It's just nowhere near what it could be."

DEALS STILL POSSIBLE

Walmart International is looking at possible deals, both to enter new countries and acquire technology and other capabilities, but for now the focus is largely on improving returns within its existing business, McMillon said.

Russia is one market that some industry experts expect Walmart to take another look at, after closing its office there in 2010 without opening any stores.

Walmart has no plans to enter Russia, but would not rule it out for the future, McMillon said.

In the latest quarter, Walmart International grew faster than its larger U.S. counterpart. Operating income rose 15.2 percent to nearly $2.31 billion at Walmart International and increased 1.4 percent to $6.11 billion at Walmart U.S.

Wal-Mart closed up 34 cents to $60.14 on Thursday.

(Reporting by Jessica Wohl in Chicago and Allison Martell in Toronto; Editing by John Wallace, Lisa Von Ahn and Carol Bishopric)

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