Wal-Mart expansion marches on

Miranda Kennedy Nov 27, 2006

KAI RYSSDAL: It’s a lousy tenth of a percent drop, but the preliminary November sales report from Wal-Mart this morning had investors thinking the end is nigh. Maybe it’s because if it stands when the final number comes out Thursday, it would be the first month-to-month decline in more than a decade.

Gas prices are relatively low. Consumer confidence is steady. So it all adds up to a worrying sign for the world’s largest retailer. The company points to poor sales of its trendy new fashion line. Disruptive store remodelings too. But retail analyst Howard Davidowitz says Wal-Mart’s strategy is at stake.

HOWARD DAVIDOWITZ: If you’re selling to the half of Americans who have record debt, sub-prime mortgages, optional adjustable-rate mortgages, 20 percent of Wal-Mart customers have no savings whatsoever. If you’re focused on that customer mix, which are the most vulnerable in our society, I think you have a problem because those folks are under water.

Despite the gloomy outlook, Davidowitz says the company has a plan.

DAVIDOWITZ:“If you upgrade merchandise in organic food, you’re OK — which they’re doing. If you do it in electronics and home, you’re OK. I think you have to be real careful with apparel — that’s an image issue, and Wal-Mart doesn’t fit a fashion image. The name of the game for them is to sell those customers more. Can they do it? I think they can. Will they do it? I think they will.

The other name of the game may be to find new customers to sell to. That hasn’t really worked very well for Wal-Mart. The company’s had to pull out of Germany and South Korea. Just couldn’t figure out the retail mystique overseas. But today Wal-Mart announced plans to try again. In India this time.

Miranda Kennedy reports from New Delhi.

MIRANDA KENNEDY: Wal-Mart’s been eager to start selling to India’s fast-growing middle class, but government restrictions on foreign ownership have held it back. Foreign firms aren’t allowed to own stores that sell multiple brands under one roof.

But today Indian billionaire Sunil Mittal announced a joint venture with Wal-Mart that gets around that problem. Mittal said his company will own the stores, then Wal-Mart will set up the supply chain.

SUNIL MITTAL: It will be a partnership of two very-well-respected companies in their own right. The names have to be decided. But it will be franchised by Wal-Mart.

Wal-Mart hasn’t officially commented on the deal but analysts say it’s easy to understand why the retailer would want access to the Indian market.

Right now most Indians patronize mom and pop shops. Only 3 percent of all shopping in Indian is in chains or big-box stores. But India’s nascent retail market is expected to be worth $600 billion in another decade.

In New Delhi, I’m Miranda Kennedy for Marketplace.

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