Carrefour, the French retailer, had been operating in Brazil since 1975. When Wal-Mart entered Brazil in 1996, it decided to overtake competitors by aggressively pricing its products. This strategy backfired, as Carrefour and other local competitors cut prices as well, leading to a price war and initial losses.
Wal-Mart realized that its global sourcing did not provide any built-in price advantage because the leading sales category in Brazilian supercenters was food items, whose sourcing tended to be local. Competitors such as Carrefour had an advantage in local sourcing because of their long relationships with local vendors.
So Wal-Mart chose to focus on areas where it could differentiate it self: customer service, targeted at neutralizing Carrefour, and merchandise mix, targeted at overwhelming smaller local competitors.
An industry observer remarked: "While small shops in Brazil have a strong customer service component, most large stores, including Carrefour, have adopted the European ethic that the customer is fortunate to have them available and if they are unhappy about something, they are welcome to go next door. To entice shoppers away from these large but user-unfriendly stores, Wal-Mart stressed its customer service, an asset enhanced by its policy for hiring and promotion.7
Speed of Global Expansion
Did Wal-Mart globalize quickly enough? One way to evaluate its speed is to compare the company with other retailers such as J.C. Penney, Kmart and Sears in the United States, and Carrefour and Metro outside the United States. As of 1998, J.C. Penney's global presence was minimal; only three of its 1,200 stores were located outside the United States - in Chile and in Mexico. In 1998, Kmart was a wholly domestic company, deriving all of its sales revenues from its United States stores. As for Sears, its non-United States outlets (all in Canada) were responsible for 8 percent of the company's total 1997 sales revenues of $41 billion. Further, international sales as a percentage of Sears' total sales remained more or less constant from 1995 to 1998. Thus it is clear that Wal-Mart established a global presence at a far more rapid rate than did its three large United States competitors.
A business profile of Carrefour (which announced a merger with fellow French retailer Promodes Group in 1999) is shown in Exhibits IV and V. Carrefour's first international move outside France occurred in 1973, when it entered Spain. It took Carrefour nearly 25 years to build to 79 billion FFr ($15 billion) in international sales. In contrast, Wal-Mart took six years to reach $7.5 billion in international sales. However, a comparison of Exhibit II with Exhibit IV indicates that Carrefour's financial performance in its international operations is better than Wal-Mart's.
In 1998, Metro A.G. was the second-largest retailer in the world, behind Wal-Mart. In 1997, some 7 percent of its total sales were generated outside Germany (compared with 4 percent in 1995 and 5 percent in 1996). As of that year, its degree of globalization was on a par with Wal-Mart's. In 1998, Metro took the major step of acquiring S.H.V. Makro of the Netherlands. Metro's consolidated sales revenues for 1998 are estimated at DM 108 billion, out of which foreign sales would constitute 37 percent.
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1Merrill Lynch, "Wal-Mart Stores Inc.," March 6, 1998, p. 11.
2Merrill Lynch, "Wal-Mart Stores Inc.," March 6, 1998, p. 12.
3 The Wal-Mart Encyclopedia, Volume III, Salomon Brothers, October 1995, p. 32. "Wal-Mart Stores Inc.," Merrill Lynch, March 6, 1998, pp. 18-19.
4 "Wal-Mart Stores Inc.," Merrill Lynch, March 6, 1998, p. 47. "Wal-Mart International Reshapes the World Retailing Order," Discount Store News, January 20, 1997.
5 "Target Europe," Chain Store Age, March 1998.
6 "Wal-Mart Stores Inc.," Merrill Lynch, March 6, 1998, p. 34. "Wal-Mart International Reshapes the World Retailing Order," Discount Store News, January 20, 1997.
7 "Wal-Mart International Reshapes the World Retailing Order," Discount Store News, January 20, 1997.