Wal-Mart Stores, Inc.

The Gift

Wal-Mart Stores, Inc. (Walmart) operates retail stores. The Company operates in three business segments: Walmart U.S., International and Sam's Club. During the fiscal year ended January 31, 2010 (fiscal 2010), The Walmart U.S. segment accounted for 63.8% of its net sales, and operated retail stores in different formats in the United States, as well as Walmart's online retail operations, walmart.com. The International segment consists of retail operations in 14 countries and Puerto Rico. During fiscal 2010, the segment generated 24.7% of the Company's net sales. The International segment includes different formats of retail stores and restaurants, including discount stores, supercenters and Sam's Clubs that operate outside the United States. The Sam's Club segment consists of membership warehouse clubs in the United States and the segment's online retail operations, samsclub.com. During fiscal 2010, Sam's Club accounted for 11.5% of its net sales.

Wal-Mart Stores has listed in New York Stock Exchange since August 25, 1972. The company has P/E Ratio 13.46, Indicated Annual Dividend 1.21, Beta Coefficient 0.30, Earnings per Share 4.02 and Shares Outstanding3,561,990,000.

Shipping cream cheese and Nestlé mineral water bought in North America to its stores in Japan is only a small part of plans for global sales growth at Walmart, the world’s largest retailer.

But Doug McMillon, head of Walmart’s international business, says using low-cost, empty containers returning to Asia to deliver to its Seiyu stores is a good example of the increasing integration of the global empire the retailer has built up during the past two decades.

 “We make a slightly higher profit margin by importing and avoiding this multilayer distribution channel that exists in Japan,” says Mr McMillon.

“We are going to do things like that to introduce newness into markets, and help reduce costs.”

Mr McMillon, 44, was named head of Walmart’s $100bn international business in January 2009, taking over from Mike Duke, who is now Walmart’s overall chief executive.

Mr McMillon arrived as the retailer was embarking on a new wave of international expansion, after retreating from South Korea and Germany in 2006.

For the past two years Walmart has added more square footage abroad than at home in the US.

As Mr McMillon took over, Walmart announced it had taken a majority stake in D&S, Chile’s largest retailer, followed by the opening of its first cash-and-carry store in India a few months later with Bharti, its local partner.

This May it announced a $1.3bn deal to buy stores in the UK from Denmark’s Netto; last month it announced a $2.4bn offer for 51 per cent of Massmart, the South African retailer; and it has also just added a new e-commerce site to its operations in China.

Walmart’s global footprint is expanding at a time when its nearest global rival, France’s Carrefour, is retreating internationally and struggling at home.

The UK’s Tesco plans more growth in China, but it is also distracted by its lossmaking venture into the US. But Mr McMillon – regarded by many as a potential future Walmart chief executive – knows he needs to persuade Wall Street that the billions invested represent the best use of its money. While the international business accounts for more than a quarter of Walmart’s annual revenues of just over $400bn, it is less pro-fitable than the US business, and delivers about a fifth of its operating income.

Mr McMillon argues that the company’s scale has made it today more of a global company than it has ever been before, in a way that will smooth the way of its planned South African acquisition.

“What we want to be is to be more effective than a local retailer because we are global. But to be so locally relevant that we are not disadvantaged against other retailers.”

The retailer’s acquisition integration strategy, he suggests, has arrived at something of a midpoint between the unsuccessful foray into Germany which ended in 2006, where Walmart tried to impose its own standards, and its subsequent hands-off initial approach to the UK’s Asda.

“Instead of trying to change everything about your life, we’re saying, here are the things that really drive performance – and let’s learn from each other,” he says. But the company, he says, is also more confident about pushing cost-saving efforts, like common sourcing of items such as wicker baskets or basic drinking glasses and towels, even if a local merchant might initially resist.

In the past, he says “we would have walked away. Today we say, ‘what are the facts?’, and ‘have you tried it?’, and try to push a bit more”. At the same time he says that an old “hub and spoke” system is giving way to something that “ends up looking more like a network”.

Executives from Asda in the UK and Walmart Canada led the team that assessed its South African acquisition plans; Japanese executives have been to Asda to study their online delivery service.

Massmart executives from South Africa should “get a chance to learn about our business in Mexico, and other parts of Latin America”.

Mr McMillon also recalls that Wall Street was sceptical about its initial forays into both Mexico and Canada, now both profitable and growing businesses.

He says that Walmart International should sometimes be judged not against its super-efficient and mature parent, but on its own merits, with operating income growing at a compounded average growth rate of 14 per cent, and profits growing faster than sales.