CAMPO GRANDE, Brazil – When Wal-Mart Stores Inc. first expanded into Brazil’s midwestern farm-belt city of Campo Grande seven years ago, the economy was booming and executives were wanting to open stores even in sub-prime locations on one-way streets venturing out of town.
It didn’t last. After December, the U.S. retailer closed each of its Maxxi brand cash-and-carry stores in Campo Grande included in a restructuring that shuttered 60 locations across Brazil, including some Supercenters. Shoppers said the stores couldn’t compete on assortment, price or location.
“It never was clear who Maxxi was for. It had not been cheap enough for that poor. But there was no appeal for the middle-class,” said Ordecy Gossler, 40, a public accountant filling his cart with cleaning supplies and toilet paper at Atacad?o, an adversary chain run by France’s Carrefour.
Related
- Wal-Mart Mart Stores Inc pulls plug on smallest store format, shuts 269 stores around the world
-
-
-
“When they announced in December that both Maxxis were closing, no one within my office knew where these were.”
Today, Wal-Mart just one Supercenter left within this city of 850,000 people, whose demographic of thrifty shoppers had once seemed suited to the world’s largest retailer. It shuttered the city’s other one after the entire year, as traffic dwindled within the shopping mall it had been meant to anchor.
The retreat from Campo Grande is emblematic of Wal-Mart’s broader issues in Brazil, a once-red-hot place to go for foreign retailers along with other firms that has turned stone cold. And also the lackluster performance in Latin America’s largest economy shows how tactics that helped Wal-Mart build success in the U.S. sometimes get badly lost in translation overseas.
International results have been anemic, despite US$22 billion in capital investment over the past 5 years. Wal-Mart this past year generated a 4.5 percent operating profit margin from international markets, well below the 7.4 percent return posted in the U.S.
Seeking higher returns, Wal-Mart CEO Doug McMillon in October announced a strategic overview of the company’s global assets. Some securities analysts have speculated Wal-Mart could exit Brazil, as well as other markets in Latin America where it is already closing one more 55 stores.
The pullback in Brazil also has some worrying echoes of previous Wal-Mart debacles overseas, including South Korea and Germany, two markets it abandoned in 2006.
In Brazil, it’s been dogged by poor locations, inefficient operations, labour troubles and uncompetitive prices – with a few from the problems baked in throughout an aggressive, decade-long growth surge – according to interviews with a dozen former and current Wal-Mart executives, as well as analysts, shoppers and store employees.
Wal-Mart would not comment on financial is a result of Brazil ahead of the company’s quarterly earnings on Feb. 18. People acquainted with the numbers told Reuters that Wal-Mart has posted operating losses in Brazil for every of the past seven years.
Jo Newbould, a spokeswoman for the retailer, said the shop closures were part of its efforts to “actively manage” its global assets and that it has worked to lower costs in Brazil.
David Cheesewright, head of Wal-Mart’s international operations, said in an interview it has no intends to quit Brazil.
He pointed to the company’s decision to invest in completing an integration of legacy personal computers in to the wider Wal-Mart platform as evidence of a commitment towards the market. “That’s not the action of somebody that is packing in the firm for other purposes,” he said.
Cheesewright expressed optimism in regards to a turnaround. “It’s a market which has always been high on potential, but is a roller-coaster ride when it comes to its performance,” he explained. “It is actually on the downturn at the moment, and I’m sure it will do what it has done, that is improve.”
Wal-Mart first entered Brazil in 1995 and grew in measured steps for pretty much a decade. That changed in 2004-2005, if this spent about US$1 billion to purchase two retailers, Bompre?o S.A. Supermercados do Nordeste and Sonae Distribui??o Brasil S.A.
The deals expanded Wal-Mart’s operations into the northeast and south of Brazil, and marked the start of a spending spree aimed at building a national footprint. With the takeovers came a range of brands: Wal-Mart currently operates under nine different store banners in Brazil.
At the height of the expansion, former Wal-Mart executives said, a land rush mentality became predominant.
Brazil’s thriving economy in those years convinced executives the biggest risk lay in moving too slowly. In response, they approved new store sites based on increasingly rosy forecasts of future sales.
“Most executives did not have the voice to say, ‘Don’t open this store; let’s not approve more stores,'” a former finance executive recalled. “Why not? Because Brazil was the new country. We needed to put investment in before others do.”
In a six-year stretch with the fiscal year ending January 2013, Wal-Mart doubled its locations, reaching nearly 560 at its peak.
The rapid expansion strained Wal-Mart’s logistics – traditionally one of its strong points in the U.S. but a drag on performance in Brazil.
In certain cases, delivery trucks drove days to reach distant stores from located warehouses. Executives from headquarters bickered with those running some kinds of stores about who should bear the distribution costs, the previous finance executive said.
Amid the main focus on growth, executives never fully integrated the legacy information systems from Bompre?o and Sonae. Disruptions in communication between headquarters and also the a variety of store types allowed inefficiencies to consider root. Buyers, for example, found themselves using three laptops, one each for the two legacy systems and another for the Wal-Mart platform, people familiar with the problem said.
Cheesewright said he’d place a priority on systems and would complete the integration through the middle of 2016. He explained that will allow Brazil to benefit fully from system and process advancements made in the U.S., helping it to lower costs.
He also said Wal-Mart was obtaining a grip on Brazil’s complex tax system and litigious labour market, problems that have dogged it for a long time. In January 2014 Wal-Mart disclosed that unforeseen Brazil tax assessments and employment claims tied to a cost-cutting drive would slice 2 percent off its annual earnings globally. Labour claims in Brazil also hurt its results in the 3rd quarter of the financial year which has just ended.
Cheesewright said it was implementing a plan, including putting advanced time-keeping equipment in shops and getting workers to formally clock in, that ought to lower the chance of worker lawsuits.
“A lot of the stuff in Brazil is just the basic stuff: do people properly clock out for their lunch breaks, do you manage overtime correctly, have they got the best breaks between shifts?” he said. “It’s a lot of basic blocking and tackling.”
Wal-Mart, whose sales at existing stores in the country edged down 0.6 percent within the August-October quarter, isn’t only retailer hurting in Brazil.
With the economy inside a deepening recession, market leader GPA , controlled by France’s Casino, suffered a 2.3 per cent sales drop at existing stores in the October-December quarter and has said it would slash investments in 2016.
Carrefour bucked the trend, posting 8.5 percent growth in sales at existing stores, because of investments in hypermarkets and growth at Atacad?o, the nation’s biggest cash-and-carry chain.
It’s a market that has always been high on potential, but has been a roller-coaster ride in terms of its performance
The cash-and-carry format, featuring bulk sales of food and other items paid for in cash and completed by the shoppers themselves, has emerged as an uncommon bright spot in Brazilian retail.
Cheesewright said Maxxi was now one of Wal-Mart’s most effective formats after it had narrowed its focus to small business owners, abandoning competing head-to-head using the larger warehouses of Atacad?o, which caters to both business shoppers and an increasing quantity of thrifty families.
But after paring to 44 locations, Maxxi gives Wal-Mart far less contact with the cash-and-carry business than Atacad?o and GPA’s Assai, that have 123 and 95 stores, respectively. Some analysts and former executives say one of Wal-Mart’s biggest missteps was losing antique dealer match for Atacad?o to Carrefour, which paid US$1.1 billion for it in 2007.
Cheesewright said Wal-Mart was piloting a larger version of its Todo Dia discount format partly as a way to attract some of the family shoppers now using rival cash-and-carry stores. Other plans include renovating supermarkets having a a bit smaller assortment and a concentrate on fresh foods.
The task of creating all that happen falls to Flavio Cotini, who was promoted this month from chief financial officer to go the Brazilian operations. The reshuffle marked the fourth leadership alternation in Brazil since 2008 – a lack of continuity at the very top which has exacerbated problems, including hindering efforts to integrate operations, former executives said.
“When you build a castle you build the building blocks first. Wal-Mart made it happen backwards in Brazil,” a former senior executive in the international business said. “It is really difficult to build a national chain whenever your system backbone isn’t in place.”
? Thomson Reuters 2016
