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Wal-Mart has announced plans for the continuation of its "aggressive unit growth" for the fiscal year beginning 1 February 2005. In the US, the Wal-Mart division plans to open approximately 40 to 45 new discount stores and 240 to 250 new Supercenters in the fiscal year. The company expects that relocations or expansions of existing discount stores will account for approximately 160 of those Supercenters, while the remainder will be new operating units. Wal-Mart added that it anticipates expanding its Neighborhood Market concept by adding approximately 25 to 30 new units in the upcoming fiscal year. The Sam's Club division expects to open 30 to 40 domestic clubs, approximately 20 of which will be relocations or expansions of existing outlets.

Chief financial officer Tom Schoewe has stated that Wal-Mart sees "thousands of opportunities" to add more sites in the USA in addition to the 1,000 sites that already have been approved by its real estate committee. CEO Lee Scott noted that the company's Supercenter format has accounted for more of Wal-Mart's expansion than the company had previously planned, partly because the company can profitably locate Supercenters more closely together than it previously thought. Once Wal-Mart saturates the US with Supercenters, Scott has said the company plans to continue its growth by building Neighborhood Markets, its smaller, grocery-store type format.

Wal-Mart also plans to construct three new regional general merchandise distribution centres and three new food distribution centres during the next fiscal year. Combined, these six DCs are expected to add more than 460,000 square metres of distribution space.

Wal-Mart International plans to open 155 to 165 units in existing markets. The company expects that relocations or expansions of existing stores will account for approximately 30 of these stores, while the remainder will be newly built or acquired. The company has confirmed that it is evaluating market entry into an unspecified number of new foreign markets.

Speaking subsequently at an industry conference, the senior vice president of finance at Wal-Mart Stores, Joseph Fitzsimmons, said that the international segment is the group's newest business and is a significant part of group operations. Carving out Wal-Mart's international sales as a separate business, according to Fitzsimmons, would make it number 25 on the Fortune 500 in terms of sales. "So the issue isn't that we don't have a substantial international exposure; the issue is that Wal-Mart is just a big company." Fitzsimmons also disclosed that the international division is Wal-Mart's second most profitable business, generating 14% of operating profits.

Mr. Fitzsimmons' comment that Wal-Mart "is just a big company" is a masterpiece of understatement: if it were a country, Wal-Mart would be the 21st largest economy in the world - ranked just behind Taiwan and ahead of Austria. If its rivals wished to eclipse it in sales terms, then an unlikely alliance of Carrefour, Metro, Ahold and Kroger would be required. If all of its employees resigned overnight, it could fill its vacancies by hiring Iceland and Estonia. Meaningless statements, maybe, but ones that underscore the sheer scale and might of the company.

Unlike retailers such as Tesco and Carrefour, for example, Wal-Mart is not looking to international activities to escape crowded and competitive domestic markets. It still has far to go before it reaches any sort of upper ceiling on expansion in the US. It has a relatively modest 15.6% of modern grocery distribution total sales, and a meagre 9.8% of grocery sales. The market leaders in the UK, Germany, France and Finland have grocery market shares of 22.4%, 15.9%, 25.4% and 40.2% for comparative purposes. M+M Planet Retail estimates that if Wal-Mart maintains its tempo of expansion in the US, it will be generating gross sales of some USD320 billion in the US by 2008, giving it a grocery market share of 13.4%. Even after that, Wal-Mart will be able to make more progress in grabbing a greater slice of grocery spending: Supercenter growth will still have some legs (particularly if the company perfects its new small-box Supercenter concept), and the opening of many more Neighborhood Markets will be attainable relatively easily. Sam's Club still has a degree of room for growth too, so all in all there is still plenty of slack in the market for Wal-Mart to exploit.

Internationally, opportunities are opening up too. Canada will see the continued organic expansion of discount superstores and warehouse clubs, while Walmex will continue to make strides in the Mexican market that it already dominates by quite some margin. This year's Bompreço acquisition will keep the Brazilian unit busy next year, while further gradual expansion is on the cards in Puerto Rico. In the UK, Asda will be opening a raft of new food stores while also playing with its new toys, the George clothing chain and the embryonic Asda Living concept. Germany will be a different story, however, with the business struggling to hang on to its existing stores rather than opening new ones. It seems likely that the parent company's deep pockets will maintain German operations while Wal-Mart seeks out new European operations. Italy, Hungary, Poland, Ireland, France and Russia have all been the speculation of market entry or acquisition, although the clever money would appear to be on the acquisition of Esselunga in Italy and the possible consolidation of non-food retailing in the UK through the purchase of Matalan. Market entry into Russia - be it organically or through a corporate transaction - would also be no great surprise.

Elsewhere, Wal-Mart is poised to continue its steady assimilation of Seiyu in Japan, with a couple more Supercenter-style outlets scheduled to open next year. This new format could receive an unexpected boost with the news that Carrefour may be poised to withdraw from a market that has disappointed the French giant in terms of slower than anticipated expansion and difficulties in addressing idiosyncratic market conditions. Wal-Mart may see this as an opportunity too good to miss in a country where both land and big box retail outlets are at a premium. The chance to link up with the struggling Daiei might also be of interest.

One final development to bear in mind is the new window of opportunity that will open in December 2004 when Chinese regulators fully open up the retail sector to foreign operators. Wal-Mart's progress so far has been fairly muted in what will become one of the world's key retail markets. With much greater freedom, the gloves will be off for Wal-Mart in China and we fully expect it to come out fighting.
KC's View: