Wally World World Wide
Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In a 2004 episode of South Park The show's four famous boys are shown being ushered into the office of Wal-Mart’s (NYSE: WMT) president and one of the store’s original creators, who has been drinking heavily and chain-smoking.
“We … invented the Wal-Mart Supercenter in 1987,” he says laconically. “The idea was simple: build a store for one-stop shopping where bulk purchases could keep prices incredibly low. We didn’t know what we were doing. In just four years, it was out of control.”
“So how do we stop it?,” Kyle asks.
“You don’t stop it!” the president responds gravely.
“There has to be a way!,” Kyle pleads.
“There’s nothing! Don’t you understand?!” cries the anguished president. “Nothing can stop the Wal-Mart in your town!
Well nothing it turns out except for smiling German sales clerks!!!
An American Icon
Wal-Mart is the most successful retailer in the US, its policy of low markup and high volume Every Day Low Pricing and folksy corporate culture found favor with ordinary Americans. The company was named by Fortune magazine as the nations most admired company in 2003.
Wal-Mart started out in Arkansas in 1962, by 1989 one year after it rolled out the first Wal-Mart Supercenter, the company was operating in 29 States. Today, there is not a state in the Union without a Wal-Mart out there somewhere.
Peter Lynch in an old interview had this to say about Wal-Mart
" It's now up twenty-fold. You still haven't invested, You say, Now I think it's time to invest in Wal-Mart." You still could have made 30 times your money because ten years after Wal-Mart went public they were only in 15 percent of the United States. They hadn't saturated that 15 percent and they were very low cost. They were in small towns. You could say to yourself, "Why can't they go to 17? Why can't they go to 19? Why can't they go to 21? I'll get on the computer. Why can't they go to 28?" And that's all they did. They just replicated their formula. That doesn't take a lot of courage. That's homework."
According to Lynch Investing in Wal-Mart was a no brainer, all it had to do was continue replicating its successful formula in other parts of the United States and continue to grow and grow. A 5,000 dollar investment in Wal-Marts IPO in 1972 would be worth $7.5 million today in capital gains and dividends and if that person had bought the shares at the ultimate historical low point after the market crash in 1974, his $5,000 would be worth $37.5 million in capital gains and dividends today! That's a lot of growth!
Well, the United States has only 5% of the world's population and 20% of the world's GDP, there is a whole wide world out there full of opportunities, markets, and money to be made. Surely if Wal-Mart could branch out state by state, area by area in the United States, what's going to stop it from doing that in other countries, right? To paraphrase Lynch why can't they go to 17 countries, 19 countries, Why can't they go to 21, Heck why can't they just go to them all?
Well, here's where Wal-Mart's growth formula hasn't worked quite as well. Wal-Mart opened it's first international Store in Mexico in 1991. Since then, it hasn't been all smooth sailing on the international front.
In 2006 Wal-Mart raised the white flag in Germany, Europe's largest retail market. After 10 years of trying it just wasn't working out. They were getting crushed by Aldi superstores which had 4,100 stores across Germany, by comparison Wal-Mart had only 85 . Wal-Mart's culture did not fit well into Germany. Germans it turns out were not very fond of overly friendly sales clerks. Male shoppers interpreted smiles at the check out counter as flirtatious.
Wal-Mart also in the same year, closed shop in South Korea where it only has 16 stores. Wal-Mart's style did not fit too well in Korea as well. Shoppers disliked the ceilings showing exposed pipes at Wal-Mart in comparison with the decorated ceilings at its competitors among other things.
One Korean Women was quoted as saying “They have stacks of goods in boxes, That may be good for some American housewives who drive out in their own cars. But Koreans, prefer smaller packages: Why would you buy a box of shampoo bottles?”
Wal-Mart is not the only Big Box retailer which has struggled in International Markets. The Home Depot (NYSE: HD) recently exited China after 6 years. People in China never adopted the DIY culture for home improvement projects. Best Buy (NYSE: BBY) has also struggled in China and last year closed its 9 outlets, to be fair though, Best Buy hasn't been doing that well in America neither.
Wal-Mart reports revenues along 3 business segments; Wal-Mart US, Wal-Mart International, and Sam's Club which is a membership club discount retailer in the US. Since Sam's Club is only in America I lumped it's $54 billion in revenues in with Wal-Mart US's $264 billion to arrive at Wal-Mart's state-side total revenue in fiscal year 2012 (ending January 31) which is displayed below.
Even though Wal-Mart has 5,651 Stores around the world in countries such as Mexico, China, Brazil, Canada, the UK, Japan, Chile, ect., the United States represented 72% of Walmart's revenue.
By comparison here's McDonald's (NYSE: MCD) Revenue breakdown by Geography
While McDonald's is an iconic American Company, such as Wal-Mart, it has made the most out of international expansion. No continent, let alone country, makes more than 50% of McDonald's revenue.
McDonald's is much better at adapting to local markets while preserving its Global Brand and characteristics at the same time. Along side famous McDonald's menu items such as the Big Mac, the Quarter Pounder, and its world famous French Fries, it has a good deal of items on its menu specifically tailored to local tastes.
Companies have been known to benchmark against others in different industries. For example to be more innovative General Electric benchmarked against Procter & Gamble as well as developing its own best practices. Maybe Wal-Mart should benchmark against Mcdonald's for International Expansion and effective Globalization.
Wal-Mart, after 21 years, still hasn't made the most out of international expansion. The company still makes 3/4 of its revenue in its home country. If Wal-Mart can learn to be more successful abroad it might boost the profitability of the company substantially. Consider that the 28% that Wal-Mart International contributed to revenue, $126 Billion, is a bit larger than Apple's entire 2011 revenue of $108 Billion, 3 times the size of Coca-Cola's $46 Billion, and 4 times the size of McDonald's $27 Billion! If the company was as successful in international markets as the US it would probably be the first company to be achieve that magical milestone of over $1 Trillion in revenues.
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