JP Morgan believes Wal-Mart is better placed than its competitors to cope with a recession. Retail analysts at the US bank have stated that “Wal-Mart’s fundamentals far outpace its peers”, and therefore that it is better placed to survive the current weak economic outlook. This is true for its US operations, but international activities are increasingly important for the retail giant. Outside Wal-Mart’s home market, the picture becomes less clear.
As such, Wal-Mart appears to be taking the lead in an emerging price war between the major US discounters. Given the firm’s slick supply chain, deep pockets and retail know-how, other US retailers will have their work cut out for them. UBS Warburg analyst Linda Kristen has already stated that “(Wal-Mart) has been aggressive with price roll-backs and has definitely been driving for market share and getting it.”
Outside of the US though, the picture is less clear. The firm is currently in talks with Mycal, a failing Japanese supermarket chain, and is also believed to be in the race for the 18 stores that UK retailer Marks & Spencer is currently selling off. But the firm still does not have a proven track record of development outside of the US.
In Europe, the company’s German operations have experienced major difficulties, and even in Canada, perhaps the most similar country to the US that the firm has gone into, it found success more elusive than expected.
The recent talks with other firms indicate that Wal-Mart still intends to develop its international operations, but its ability to compete with foreign retailers in their own markets is less clear. It will need to adapt to local trading practices and understand the differences between US consumers and those abroad.
The learning phase for international development is likely to be a long, rather than short, one and it may well be some time before Wal-Mart can replicate its slick US operations elsewhere. Other retailers may just get there first.
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