At Europe's 'model' operation, figures and outlook are both Jolly Good - Wal-

Mart's European operations

DSN Retailing Today,  June, 2001  

Of all the events to take place during the 10 years since Wal-Mart began its global operations, the acquisition of

ASDA nearly two years ago was easily the most significant. In addition to the obvious benefit of entering a new,

major English language market, the acquisition allowed Wal-Mart to double its international sales volume and

transition to a new senior management team whose philosophy of how a global retailer should operate has set the

tone for Wal-Mart International. It's no wonder Wal-Mart executives call ASDA a model acquisition.

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ASDA was acquired in mid-1999 when its 229 stores were producing sales of $13.2 billion, and by the end of the

recent fiscal year, its store count had increased to 241 units while sales grew to $14.5 billion. ASDA sales now

represent 45% of the International Division's total sales of $32.1 billion, and the company accounts for an even

higher percentage of the International Division's $1.1 billion in operating income. Wal-Mart doesn't disclose

operating income by country, but even if ASDA's operating income hadn't increased from $702 million at the time

of acquisition this amount would represent 64% of the division's total.

Going forward, expectations are high that ASDA will continue to shoulder much of the sales and profitability

burden. Last year's record-setting 500,000-sq.-ft. expansion will be surpassed this year with the addition of

600,000 sq. ft. in the form of nine new stores. Another four units will be relocated and six others will undergo

major remodels. This will leave ASDA with 250 stores and sales approaching $16 billion at the end of the current

fiscal year.

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ASDA brought a higher degree of predictability to the International Division's sales and profits, and so far Wal-Mart

has been careful to avoid dramatically altering the formula.

"We've got a company that we were smart enough not to try and change," said Dave Ferguson, president and ceo

of Wal-Mart Europe. "It was an opportunity for us to involve ourselves, listen and pay attention and learn from it.

We will end up with a better system as it translates to food, and this will have a positive impact on our company

worldwide."

Ferguson contends Wal-Mart can learn much from ASDA because food represents 70% of sales; its food

departments have higher turns and operate with shorter lead times and quicker replenishment than domestic

operations.

"Some of their practices are far better than what we are used to," Ferguson said.
Conversely, ASDA has much to learn on the general merchandise side of the business; the potential for

improvement in this area helped the company earn its status as a "model acquisition." That potential is largely

untapped at this point, although changes are beginning to take place. Departments such as home and leisure are

being reset, and Wal-Mart's hand was evident this spring as stores got aggressive with the lawn and garden

department and the creation of product displays near store entrances.

More significant changes will take place this year in the specialty areas of pharmacy, optical and photofinishing as

ASDA looks to mirror the one-stop-shopping found at U.S. supercenters. The number of one-hour photo labs will

increase to 50 from six, and 50 new vision centers will be added. In addition, the number of pharmacies will be

increased to 94 from 36. ASDA already operates gas stations at 146 of its 241 stores.

Although the opportunities for improvement are more abundant on the general merchandise side of the business,

Wal-Mart has initiated changes in ASDA's successful private-label food and apparel programs, which generate

almost half its sales.

Food is already sold under the ASDA brand and last year Wal-Mart introduced its Great Value brand and has grown

the program to 100 items. Launched early this year in the United Kingdom and Germany was a 500-item opening

price point private label called Smart Price.

"We are cautiously moving on that here because the ASDA brand is so well established," Ferguson said. "When you

look at any kind of transition away from that you have to be careful what you are asking for."

The same is true of ASDA's apparel program. Wal-Mart has sought to build on the success of the private-label

George line of apparel with the introduction earlier this year of a less expensive line of basics called Essentially

George. In short order, the Essentially George sub-brand has grown to account for 35% of the George line. Sales

are also accelerating, according to Ferguson.

Wal-Mart is counting on merchandising changes and additional services to boost productivity of existing ASDA

stores and help maintain the momentum the company has experienced over the past few years. Estimates place

ASDA's same store sales growth at 5% last year on top of comps of 8%, 4.2%, 8.2% and 9.2% in the preceding

four years.
Tesco, the dominant player in the market with a total of 678 stores, had comps of 4.2% on top of 4.2%, 4%, 6.1%

and 7.5% increases. Sainsbury, the company ASDA contends it has supplanted as No. 2 in market share, has been

losing momentum with four years of same store sales in low single digits and even a slightly negative year in 1999.

Whether ASDA surpassed Sainsbury in market share last year is really a moot point because the company has

undertaken a restructuring proAt Europe's 'model' operation, figures and outlook are
both Jolly Good - Wal-Mart's European operations

DSN Retailing Today,  June, 2001  

<< Page 1  Continued from page 1.  Previous | Next

Despite achieving slightly lower same store sales, Tesco remains the dominant retailer in the United Kingdom and

has become more aggressive with price reductions and expansion since Wal-Mart entered the market. It added 1.3

million sq. ft. of space in the United Kingdom and boosted the store count of its Extra hypermarket format to 24

from 9. The Extra stores are the closest thing to an ASDA Wal-Mart supercenter in terms of size and product mix.

In addition to competing for sales, ASDA and Tesco compete for store sites, as both look to open more large-

format stores. Also entering the picture is Costco, which operates 10 clubs in the United Kingdom and has plans for

a total of 50 to 60.

The challenge of opening new stores relates more to approval processes that can be lengthy and entail concessions

rather than the lack of land. For example, when ASDA wanted to relocate a store in Bradford, it agreed to subsidize

bus service from a housing project near the old location.

Ferguson doesn't buy the notion that stores can't be opened and contends a process that is predictable can be

managed. So far, Wal-Mart has managed to open three super-centers under the ASDA Wal-Mart banner. At about

100,000 sq. ft., they are smaller than Wal-Mart's smallest domestic supercenter, but they do larger volume

because U.K. residents have considerably fewer stores to shop at than U.S. residents have.

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Three more supercenters are scheduled to open this year, including one in Leyton that will be the closest store to

London. ASDA is underrepresented in southern England where population densities are highest, although no higher

than in Korea or China where Wal-Mart operates multilevel stores.

The potential for several years of strong growth is a realistic possibility based on Goldman Sachs research, which

contends the United Kingdom is significantly understored compared to France and Germany.

An analysis of retail food store space in key European countries found there is about 60 million sq. ft. of space in

the United Kingdom serving a population of 60 million. France has roughly the same population but 109 million sq.

ft. of space, while Germany has a population of 82 million and 290 million sq. ft. of retail food space. The relative

shortage of British retail space is responsible for the high sales per square foot and profitability of retailers rather

than their superior execution on the part of retailers, the Goldman Sachs analysis concluded.

With Wal-Mart in control of ASDA, the assumption to be made is that execution will improve, especially as it relates

to general merchandise. Ultimately, the ASDA name may even disappear, although a change of this magnitude is a

long way off.

"There is no intention to change the name at this point," Ferguson said. "If you look at Mexico as the template,

they do business under a lot of different banners very successfully. The big learning for us here, and one of the

good moves on the part of the company, was to not take away or diminish the name that ASDA had developed in

the marketplace. My goal is to make this the best ASDA it can be and then layer in learnings from Wal-Mart."
gram that will allow it to be overtaken this year

People power bridges operations from Bentonville to Beijing - Wal-Mart - Brief

Article
DSN Retailing Today,  June, 2001  

Wal-Mart's strong financial position and the presumed availability of acquisition candidates assure its ability to

expand globally. But that's only one part of the equation. The other key element for expansion--and one that has

been seen as a limiting factor in the past--is the preparedness of Wal-Mart's people to take on the challenge of

entering new countries.

But this situation has changed considerably as Wal-Mart's people have gained international experience through a

variety of management development programs. Wal-Mart executives believe the availability of talented managers

has improved the company's state of readiness.

"When I think about how we go from nine countries to 20, it is less about acquisitions and more about how do we

manage 20 and do we have the people ready to do 20," said John Menzer, president and ceo of Wal-Mart

International Division. "If tomorrow someone said, 'here's five countries.' What would we do? I believe if you bad

asked me a year ago I would have said, 'we would run.' Today, I think we have the people to make some of these

things happen."

Menzer, along with coo Craig Herkert and other top international executives, have made people development a top

priority for good reason. Attracting, retaining and developing quality people is one of the greatest challenges any

rapidly expanding organization faces, and it is especially true for Wal-Mart given its international growth plans. The

company's track record has been to enter a new market every year or every other year, so entry into another new

market is inevitable because it has been about two years since Wal-Mart entered the United Kingdom by acquiring

ASDA.

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When Wal-Mart does enter a new country, it plans to have an individual ready for the top leadership position as a

result of a program called Accelerated International Management. Wal-Mart identified 20 to 25 people that have

the potential and desire to be country presidents. Now, when Menzer or Herkert travels to a country, they spend at

least an hour with the individual to assess their growth and readiness.

"We keep the program somewhat small because I personally meet with all these people," Menzer said.

Another key initiative is the International Leadership Development program. It involves people from various

countries working in other countries to expose them to new ideas, while they provide the host country with their

skills. There are 25 Wal-Mart de Mexico associates, for example, working in U.S. stores, while there are 17 U.S.

associates working at ASDA.

"We have a global talent pool we can pull from," said International cfo Charles Holley. "I have a young man who is

very talented from Mexico who is going over to train Germany on accounts payable. I have a young lady from

China who is an assistant controller doing a stint over here. I have a young lady from the United States who is

going to China to impart what she knows."

Access to a global talent pool is also creating different advancement opportunities because individuals have the

ability to move from country to country depending on where their strengths fit a position.

"We now look at opportunities for successors on a global matrix," Menzer said. "If there is an Argentina opportunity

in merchandising we can look across all the countries to see where we have two or three really strong people in
that area. We don't just look at Argentina. We look across the world to see who we can put in that slot, and it has

really helped us strengthen the organization."

International director of operations Mario Villalpando is a case study. He was a successful store manager of high-

volume locations in Mexico who went on to stints in Argentina, Brazil and China before being promoted to his

current position based out of Wal-Mart's Bentonville, Ark., home office.

The transfer of talent around the world has required a shift in thinking within the International Division. Early on,

as Wal-Mart entered new countries, the strategy was to send teams from the United States because Wal-Mart was

successful here and they would know how to make the formula work in foreign markets. As the division has grown,

new countries have been entered and management talent has developed, it is no longer the case that an expatriate

has to be from the United States. As an example, Menzer noted that the head of information systems in China is

from Mexico.

"International is starting to take on a life of its own and all the best ideas are not just coming from the United

States anymore, they are also coming from International," Menzer said.

Dense island market and American influence yield bounty of retail potential -
Wal-Mart operations in Puerto Rico - Brief Article
DSN Retailing Today,  June, 2001  

Because Puerto Rico exists as a commonwealth of the United States and uses the dollar as its currency, inclusion in

Wal-Mart's International Division has always raised eyebrows. But while Puerto Rico's status as a foreign country

may be debatable, its potential for growth is not--regardless of how Wal-Mart chooses to account for the sales and

profits.

There were only nine discount stores and six Sam's Clubs in operation at the end of the most recent fiscal year.

This may seem like a lot on an island that is relatively small, 35 miles wide by 100 miles long, but Puerto Rico's

population totals almost four million.

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By contrast, states such as Oklahoma or Arkansas have smaller populations, but considerably more Wal-Mart

stores. Oklahoma's population is only about 3.4 million, and yet Wal-Mart operates 48 discount stores, 32

supercenters, six Sam's Clubs and eight Neighborhood Markets. The population of Arkansas is only 2.6 million, but

it supports 41 discount stores, 36 supercenters, four Sam's Clubs and five Neighborhood Markets.

Certainly there are major differences in the markets as Puerto Rico has a lower standard of living, a much higher

unemployment rate and stronger thread of political instability. In addition, Wal-Mart has far less experience having

entered Puerto Rico in 1992, as compared to almost four decades in its home state of Arkansas and neighboring

Oklahoma.

The comparison is a useful exercise, however, because it illustrates the huge potential to grow sales on the Island

where current volume for the 15 Wal-Mart units is estimated to be about $755 million.

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An argument could even be made that Puerto Rico is understored. Wal-Mart's Sam's Club locations are consistently

some of its highest-volume locations with several producing sales in excess of $100 million. Sam's also produced a

same store sales increase in the mid-teens during the fourth quarter. The performance of Sam's Puerto Rico

locations got the attention of Costco, and it plans to open a club there later this year.

JCPenney recently told Fortune magazine that its highest-volume store is a 30-year-old location in San Juan's Plaza

Las Americas mall, which draws 12,000 customers daily. Kmart has operated in Puerto Rico for roughly three

decades, and its 26 stores there are believed to be among the chain's top performers. It recently opened a store in

Juncos and has another unit planned for later this year. Walgreens is another retailer with three decades of

experience on the island that has enjoyed success and presently operates 50 stores. A new Belz outlet mall also

opened this spring just east of the San Juan airport.

The most significant retail development taking place in Puerto Rico is the impending expansion of Wal-Mart

supercenters, with the Island's first unit having opened April 4 in Cayey, and another unit planned for later this

year. Possibly, in its efforts to implement its best practices strategy and maximize its market share in food, Puerto

Rico may be most suitable for smaller Neighborhood Market formats or Mexico's no-frills Bodega format, although

Wal-Mart has no specific plans yet.

If the early success of the Cayey supercenter is any indication, Wal-Mart will have little problem getting customers

to shop its stores for food. At the grand opening, it was hard to find a shopping cart without several bags of pulpo

(octopus). At $0.97 a pound, the pulpo was a tremendous value, and customers were stocking up. Competitors

were priced considerably higher; even the island's Sam's Clubs were priced higher at $1.57 per pound.
With one store and an attractive price on staple items of Puerto Rican diets, Wal-Mart quickly extended its low-

price image to food. It was a classic case of item merchandising that, along with scores of other opening-day deals,

WalMart has used effectively worldwide to attract shoppers and reinforce its EDLP strategy.

Competition for the food business is fragmented in Puerto Rico as there are no national competitors, but several

chains have double-digit store counts and sales in excess of $100 million.

The leading chain is Pueblo International with 50 stores under names such as Xtra Super Food Center and Pueblo

International Supermarket, and sales of more than $500 million.

Not far behind in volume is Supermercados Amigo, operating 29 stores under the same name with sales of $425

million. The island's third largest grocer is Empresas Cordero Badillo with sales of $350 million from 31

Supermercados Grande.

A fourth significant player is J.F. Montalvo with annual sales of $305 million from 21 stores under the names Cash

& Carry and Plaza Gigante.

Rounding out Puerto Rico's other major grocery players are Supermercados Econo, Mr. Special Supermarkets,

Almacenes Pitusa and Supermercados Selectos. The eight chains' combined sales total slightly more than $2.2

billion.

That's a lot of market share to pursue.

And Wal-Mart should be a formidable competitor as it looks to double its sales volume within a five-year period