Wal-mart Stores Inc., the world’s biggest retailer by sales, is slowing its opening of new stores in China and Brazil after admitting it had made mistakes and let profitability slip in its haste to expand.
Charles Holley, chief financial officer, said “clearly we’d gotten ahead of ourselves”, but stressed the decision was not a response to slowing economic growth in China and Brazil or to allegations of corruption in Mexico.
“We still feel very positive about those two countries ... It’s all about us right now,” he told reporters. Wal-mart cut its plans for new store space overseas this year by about 30 per cent to the equivalent of between 115 and 126 new U.S. Supercenters.
Competitor Tesco has dramatically scaled back its ambitions to open big stores in China this year and does not have a presence in Brazil. Carrefour has said the hypermarket format needs to be adjusted in China, and its Brazil business has been at the centre of speculation over a possible takeover.
Natalie Berg, research director at Planet Retail, said multinationals were beginning to attach a higher priority to smaller stores and e-commerce in emerging markets.
“These big box retailers are recognizing from their current operations in developed markets that perhaps the hypermarket isn’t a forever format,” she said.
Wal-mart’s like-for-like sales rose by 5 per cent in both China and Brazil in the past quarter. Its operating income grew “slightly” in China and it posted a “slight” loss in Brazil.
Elsewhere, Wal-mart confirmed it was delaying some store openings in Mexico due to a new approvals process introduced following allegations that it had paid bribes to secure store permits six or more years ago.
Mike Duke, chief executive, said in a statement on Thursday: “Our goal is to achieve profitability and returns that are more balanced and to do that, we must improve operational and sales productivity in some of our emerging markets.”
In China, Wal-mart admitted that it had been “too flexible” in opening stores that were hard for shoppers to navigate because they were on multiple levels or in odd shapes. It said it would open half the new square footage it had previously planned.
In Brazil, Wal-mart has battled to reduce operating costs and to convert shoppers to consistently low prices - its trademark - from the local supermarket tradition of yo-yoing discounts and mark ups.
Wal-mart’s announcement came as it reported that international sales in the quarter to the end of July rose 7.2 per cent to $32.3-billion (U.S.), excluding currency effects, marking a slowdown in growth from a 10.9 per cent rise in the previous quarter.
Net income came in ahead of market expectations and Wal-mart raised its profit forecast for the full year. But global revenue of $114.3-billion fell short of Wall Street forecasts in spite of growth in the U.S., partly due to the impact of a stronger dollar.
Its shares fell 3.3 per cent to $71.96 after its results, having rallied 21 per cent in the past three months.
Wal-mart’s international business, which includes Asda in the U.K., makes up around 28 per cent of its total revenue.