Dean Junkans is incorrectly identified as chief investment officer for PNC Wealth Management. He is chief investment officer for Wells Fargo Private Bank.
As growth in U.S. slows, Wal-Mart puts more emphasis on foreign stores
Tuesday, June 8, 2010
BENTONVILLE, ARK. -- The American consumer alone can no longer save the world, and nowhere is that more apparent than here inside the world's largest retailer: Wal-Mart.
The company that began as a five-and-dime in rural northwest Arkansas opened its annual shareholder meeting last week with Bollywood-style dancers, Asian balancing acts and Brazilian martial artists representing some of the 14 foreign countries in which Wal-Mart operates. Last year, its international division topped $100 billion in sales for the first time and this year it is expected to surpass the United States in number of stores.
This is the next phase of Wal-Mart domination. It built its business in small towns and suburbs across the United States, but now international sales are growing at almost nine times the rate of domestic sales.
Wal-Mart already was facing stalled growth at home after saturating the market, and that has been exacerbated by the weak labor market and high gas prices, which have battered the chain's core customers and depressed sales. That means the company has become increasingly reliant on the appetites of international shoppers to pick up the slack and drive growth, mirroring a broader global shift in purchasing power.
"The U.S. consumer is tired," said Dean Junkans, chief investment officer for PNC Wealth Management. "I think it's very possible that you can kind of have the global consumer kind of take the baton."
But dethroning the American shopper can be a risky proposition, as no one country has the replacements quite ready. In a letter to his global counterparts last week, Treasury Secretary Timothy F. Geithner warned that world economic recovery could no longer rest on the shoulders of U.S. consumers. He urged Japan and some European nations to increase demand domestically and cited the need for sustained growth in China.
"Without further progress on rebalancing global demand, global growth rates will fall short of potential," he wrote.
Wal-Mart opened its first international store in Mexico in 1991 and has grown both through acquisitions and its own innovation. At first glance, it might be difficult to spot a Wal-Mart in another country. Though it is synonymous with the big-box stores it helped pioneer in the United States, Wal-Mart has nine international store formats ranging from relatively tiny Bodega Aurrera Express stores in Mexico to a cash-and-carry warehouse in India to the traditional box in Canada. It operates under 55 different banners -- Acuenta in Chile, Asda in the United Kingdom and Seiyu in Japan.
But all the stores strictly adhere to a core Wal-Mart principle: always low prices.
"The most important thing that they stress is pricing," said Francisco Chevez, an analyst with HSBC Securities. "That's what has made the difference."
Economists have long predicted that consumers in emerging economies would not only manufacture most of the world's goods but also buy them. China has surpassed the United States as the world's largest auto market in number of vehicles sold. Foreign sales account for roughly 30 percent of revenue of S&P 500 companies, up from 20 percent a decade ago. By 2014, the International Monetary Fund forecasts, emerging economies will contribute more to the world economy than developed nations.
For Wal-Mart, that means doubling-down on investment in its international stores. About 60 percent of the growth in Wal-Mart's footprint came internationally last quarter. It announced plans to buy Danish competitor Netto last month and has been in acquisition talks with several Russian retailers over the past year in hopes of entering what could be a lucrative new market.