Walmart: Managing International Business

Sarah Herman

Over the past fiscal year, net sales for Walmart in the US grew by only one percent - the worst gain in the company's history - and therefore successfully managing international business and increasing international sales is going to become Walmart's fundamental focus.

International sales reached $100 billion over the last year and, according to the company, global sales jumped 8.9 percent on a constant-currency basis in the first quarter. Around 60 percent of Walmart's overall growth came via managing international business.

Walmart's reduced growth in its native country, the US, transpired as a result of saturating the market and that has been exacerbated by the weak labor market and high gas prices, which have battered the chain's core customers and depressed sales.Thus, it has, arguably, become imperative for Walmart to combat the slow-moving market growth in the US by improving, expanding and managing international business.

According to Mike Duke, Walmart's CEO, "My expectation is to add customers, to add stores and to grow Walmart at an even faster pace." Mr. Duke, did not, however, provide any growth targets for the national or global markets.

The many changing faces of Walmart

Walmart's first store was opened in Arkansas in 1962 and within five years had expanded to 24 stores across the state. In 1968 the company branched out and opened stores outside of Arkansas and went on to grow rapidly throughout the 1980s and 1990s into the retail giant it is today.

Its first international store was opened in Mexico in 1991 and today Walmart now has almost 5000 stored worldwide.

Those managing international business have, however, taken something of a different approach in terms of each individual country and the company has nine international store formats, ranging from cash-and-carry warehouses in India, to huge supermarkets under the name Asda in the UK and the relatively tiny Bodega Aurrera Express stores in Mexico.

Recession's lasting effects

Walmart has, however, stuck to the same ethos when managing international business as it has in its approach to business in the US: always charging its customers low prices.

"The most important thing that they stress is pricing," said Francisco Chevez, an analyst with HSBC Securities. "That's what has made the difference."

Many people in the US are still struggling from the effects of the financial crisis though and Walmart's senior director of marketing for the US, Jamie Sohosky said that some lower-income consumers are "still deeply in the recession."

She also pointed out that more Walmart customers are using coupons than they did a year ago and are still worried about losing their jobs and being able to pay their mortgages. Indeed, Walmart has continuously driven down prices throughout the global crisis and this has ultimately eaten away at the company's overall revenues and caused Walmart to re-consider its direction and focus on managing international business.

Dean Junkans, chief investment officer for PNC Wealth Management, confirmed this, saying that "The U.S. consumer is tired. I think it's very possible that you can kind of have the global consumer kind of take the baton."

Although the recession did hit other countries in which Walmart operates, the downturns have not been so severe and recovery has been stronger and therefore it makes sense for Walmart to focus more heavily on managing international business in order for the global giant to increase sales and revenues.

According to the International Monetary Fund (IMF) the US economy is expected to grow 2.3 percent this year. By contrast, Mexico's economy is forecasted to expand 4.2 percent, Brazil's by 5.5 percent and China's economy is predicted to rise by over 10 percent. These are all countries in which Walmart has heavily invested.

Walmart's executive vice-president, Doug McMillon, is managing international business for the company and said: "We really think of it as a portfolio. We expect emerging markets will help deliver a lot of top-line growth...But the developed markets help create continuous cash flow, some predictability."

Thus, Walmart's overriding focus, at least for the near future, will be placed predominately on managing international business rather than the company's native homeland. However, things may change again when the US finally finds its way out of the recession and lower-income consumers cease to be hit so hard.

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