I realize this will probably come as a shock to most people reading this, but I feel it's important to share. I hope you're sitting down for this: Wal-Mart (NYSE: WMT) is expanding. I know. I couldn't believe it at first either. But I checked a few different sources, and it's true.
I guess opening up 200 new stores each year in the U.S. just wasn't enough, so the focus is now on the international market, where Wal-Mart continues its success. For the fiscal year ended Jan. 31, 2004, international sales jumped 16.6% to $47.5 billion.
To ensure those numbers keep improving, earlier this week Wal-Mart announced it's buying Bompreco, a Brazilian supermarket chain. With the acquisition, it quadrupled its presence in Latin America's biggest economy. The purchase of the 118-location retailer moves Wal-Mart up from sixth to No. 3 in the market.
At a price of approximately $300 million, Bomperco accounts for less than half of the retail giant's average daily sales of $700 million (sales easily top $1 billion on a busy day). It's truly another brilliant move in Wal-Mart's quest to take over as the world's top retailer. If it is able to continue at this pace, it may one day be the only place to shop.
With the purchase, Wal-Mart is looking for its U.S. strategy to successfully transfer to Brazil. The Bompreco stores are located in Brazil's poorer northeast region. Wal-Mart has had enormous success by opening stores in small, generally poorer markets and essentially taking over as the primary retailer. The purchase also allows Wal-Mart to set up its distribution system, which has been paramount to its success. The idea is to place a distribution center at a central location and surround it with as many stores as possible to ensure the shelves can be replenished within a day. Such a simple idea creates ample profits.
I realize it's almost become trendy to dislike Wal-Mart and there are certainly plenty of reasons. In addition to its business practices, the company is resented simply because it has been so successful (the retail king has created five of the top 10 wealthiest people in the world, with each Walton heir worth approximately $20 billion).
From a purely business perspective, however, it's remarkable. I see no reason why Wal-Mart won't carry over its enormous success overseas. With its better positioning in Brazil, it will be able to enter new markets in other heavily populated Latin American countries like Venezuela. The company is also looking into advancing upon Russia and India.
There is no reason to think Wal-Mart will have any difficulties reaching its goal of non-U.S. business making up one-third of its sales and earnings growth in the next few years.
Motley Fool contributor Mike Cianciolo welcomes feedback, and does not own shares of Wal-Mart.
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