PG Profile: Wal-Mart vs. the world
When you're the world's biggest retailer, your size alone guarantees that virtually everyone has an opinion about you. For Wal-Mart, those opinions range from awe and admiration to fear and loathing, especially among its competitors, which now include nearly every retailer in the United States and a growing number of companies overseas. Perhaps more telling, Wal-Mart shoppers have an opinion that's hard to ignore: They like a good deal.
Based on its low-price, customer-focused strategy, Bentonville, Ark.-based Wal-Mart Stores, Inc. has made a phenomenal trek in four decades from a small-town variety store in the rural South to a retail behemoth that today boasts $244.5 billion in annual sales, thousands of stores that span the globe, a powerful worldwide supplier and distribution network, some 1.3 million employees, and a leading position in retailing for food, toys, and jewelry, among other categories.
Wal-Mart, known for its enthusiasm—the company even has its own cheer—isn't content to stop there. Among its goals for the next few years: continued expansion of the supercenter format and further development of Neighborhood Markets, renewed focus on Sam's Club warehouse stores, increased growth in foreign markets, and a push in global branding. Those are merely the goals the company has shared publicly. Other avenues it may pursue, according to industry observers, include dollar stores (it's already testing formats in some of its stores), and free-standing drug stores.
All told, Wal-Mart could become the world's first trillion-dollar corporation in 10 years if it keeps up its compound growth rate and finds new streams of revenue, according to one analyst.
"This is a very different company than Wal-Mart of 1980 or 1985. They can be big and small, upscale and mass market at the same time. These are things they couldn't do 15 years ago," says Richard D. Hastings, v.p. and chief retail analyst at New York-based Bernard Sands. "In 1980, I don't think anybody there would have said, 'We're going to be a $250 billion company in 2002.'"
How does a company that big continue to grow? John Menzer, president and c.e.o. of Wal-Mart's international division, recently addressed that question at Goldman Sachs' 10th Annual Global Retailing Conference in New York. "We continue to focus on one store at a time, one customer at a time, and one employee at a time," he told analysts.
No doubt, the company's focus is on low prices for its customers and cost savings for itself. "We want to be the shopping choice always for our customers. We will always aggressively price our products and compete in the markets we are in," says Wal-Mart spokesman Tom Williams. "We seem to do best when we are constantly looking over our shoulder."
The strategy seems to have worked so far, but as Wal-Mart continues to pursue such phenomenal growth, it will encounter several challenges that could create obstacles along the way. Finding good labor—a hard task for any retail company nowadays—will be particularly important for Wal-Mart, since it will increasingly need to rely on store-level management to keep in touch with local merchandising and employee relations. And because it plans to remain nonunion, the job will only get tougher as animosity among labor groups swells.
Community opposition
Another notable challenge will be finding sites suitable for its large stores, as well as communities that are receptive to growth. Already in California and other densely populated areas, Wal-Mart is facing some opposition from residents who don't want megastores or have a negative opinion of Wal-Mart and its effect on local businesses. Globally, the company may also find more resistance from home-based retailers that have established themselves in foreign markets and resent its growing power with suppliers.
In addition, although Wal-Mart is the leading competitor in many retail categories, its massive strength will force some of its competitors to consolidate. That will create a tougher retail environment.
For now, the focus of Wal-Mart's U.S. strategy—supercenters—is proving to be invaluable. The nearly 1,400 supercenters now deliver almost two-thirds of the sales of Wal-Mart Stores' operating segment, which includes domestic department stores, supercenters, and Neighborhood Markets. The format has proved resilient during the tough economy, when many retailers have suffered, often at Wal-Mart's expense. In the second fiscal quarter, which ended in July, Wal-Mart posted a $2.44 billion profit on $62.6 billion in sales, and it reported that grocery sales at supercenters grew 23 percent.
A brilliant component of the supercenter format is its full grocery line, which drives customer traffic and shopping frequency, and ideally gets shoppers to visit the higher-priced nonfood aisles as well. The format, which averages around 190,000 square feet and includes pharmacies and other specialty departments, has been wreaking havoc in the supermarket industry as Wal-Mart enters competitive markets offering unbeatable prices. In a short time, it has gained the leading position in markets such as Dallas and Oklahoma City, and it can arguably do the same from coast to coast. According to estimates from Retail Forward, a consulting and market research firm in Columbus, Ohio, Wal-Mart is the equivalent of a 19 percent player in the supermarket industry. It also took the No. 1 slot in Progressive Grocer's Super 50 list of the nation's largest supermarket operators this year.
By 2007, Wal-Mart's supercenter count could very well reach 2,000 if the company keeps up its current plan of opening around 200 stores per year. That growth could give Wal-Mart control of 35 percent of food store industry sales, according to Retail Forward.
Looking at where Wal-Mart will go, there are huge opportunities west of the Mississippi—particularly in states like California, Washington, Oregon, Alaska, Arizona, and Colorado. In many cases, Wal-Mart is replacing its namesake discount stores with supercenters instead of building new units. "Wal-Mart's strategy is that two-thirds of the supercenters will be conversions of the existing discount stores they operate. That shows terrific insight," says Sandy Skrovan, v.p. of Retail Forward.
Still, as Wal-Mart continues this aggressive expansion away from some of its mainstay markets, some areas are showing signs of opposition. A few neighborhoods in California, where Wal-Mart plans to open at least 40 supercenters during the next four years, have passed ordinances against big-box stores to keep out supercenters, which they say contribute to noise and traffic.
California is also a hotbed of union opposition to Wal-Mart. Negotiations this month with United Food and Commercial Workers Local 770 in southern California, which represents employees at Stater Bros., Albertsons, and Safeway, will bring some of those issues to the table. "That's going to be a key contract, because Wal-Mart and Costco are nonunion," notes Burt Flickinger III, managing director at New York-based Strategic Resource Group. The labor differential between the unionized chains and Wal-Mart, including all benefit costs, tends to be anywhere from $2 to $4 higher per hour per part-time employee, and as much as $10 an hour for a full-time employee, he says.
Nonetheless, Wal-Mart has successfully gone into such heavily unionized areas as Philadelphia; Rochester, N.Y.; and Milwaukee, Flickinger notes. "Urban and metropolitan areas are largely fertile ground for Wal-Mart unless there's very strong cooperation between chains and independents working closely with labor leadership on a local and regional level," he says.
To get into urban markets, Wal-Mart has been working on tax-incentive financing, which gives it more political clout, Flickinger says. "I worked a lot on the case involving Wal-Mart's proposal to build in the historic Garden District in New Orleans. Wal-Mart was strategically smart in hiring the former governor of Louisiana, the former mayor of New Orleans, and a former U.S. senator. It helped them get federal funding, state funding, and local funding where the sales tax dollars from the supercenter pay for the cost of construction of the supercenter and shopping center, as well as the maintenance of the shopping center. The government puts up housing next to the shopping center, so they get guaranteed new customers. And Wal-Mart gets the property for free after 20 years."
Beyond supercenters, Wal-Mart is still testing the Neighborhood Market, a supermarket format the company says is meant for fill-in trips by supercenter customers and therefore is typically located nearby. Although the introduction has been conservative so far, observers expect a much more aggressive rollout, which means more competition for established food retailers.
"Wal-Mart is looking to go national with Neighborhood Markets in 2005," Flickinger says. "At that point, all their distribution centers will be built to support a national rollout."
Wal-Mart's distribution network is one of its greatest strengths. The company currently operates 21 food distribution centers and seven fresh/frozen DCs, and even with that number, it could serve more stores than its current base, observers agree. Overseeing the development of its national distribution network is Darwin Jones, a supermarket industry veteran who formerly held positions at Ahold, Kroger, and Ralphs.
The company's third food-related format is Sam's Club, a warehouse club for shoppers who want to stock up monthly. While the format in the last few years has seen declining same-store sales and intense competition from its rival, Costco, it seems to be in the midst of a turnaround, thanks in part to a newly installed management team. The new brass is refocusing efforts on small-business customers to set Sam's Clubs apart. Menzer has said the company's strategic goal is to get 60 percent of revenue from business members.
Wal-Mart may also be considering several smaller, alternative retail formats for its U.S. operations, according to Retail Forward's Skrovan. "We see them beginning to explore in more depth smaller formats. There's a strong likelihood that they'll explore rolling out their own drug chain and/or dollar store chain, and will get more into the convenience/fueling station business." Those formats would raise fewer red flags with local opposition in urban areas, she notes. The industries don't have as much of a union presence either, which would be another benefit. Wal-Mart could also get into foodservice as an expansion of convenience retailing, Skrovan adds, although that would likely be further down the road. Its experience with former subsidiary McLane Co., a wholesale distributor whose business includes foodservice, could come in handy if that were the case. Earlier this year, Wal-Mart sold the subsidiary to Berkshire Hathaway.
Global growth
Outside of its U.S. operations, Wal-Mart is steadily and cautiously staking its claim in a number of international markets to help ensure long-term growth. So far, the results have been phenomenal. It now operates more than 1,000 units in nine countries, and sales approached $41 billion this year. "If Wal-Mart International were a separate company, it would be No. 33 on the Fortune 500," Menzer told Goldman Sachs analysts. "Our challenge is to make up one-third of the company's sales," he added, noting that part of the strategy is to "take our global scale to the local level."
"Wal-Mart has shown overall a good capability to grow internationally, but it hasn't been a uniform success by any means," observes global retail specialist Frank Badillo of Retail Forward. Some of its most successful ventures include its acquisition of Asda in the United Kingdom, which recently progressed to the No. 2 spot among U.K. retailers, and Mexico, where it entered through a joint venture with Cifra and is now the top-ranked retailer, he notes.
Germany has been the most difficult market for Wal-Mart to break into, because of more stringent retail regulations and plenty of low-price competitors.
Still, Wal-Mart seems committed to keep trying. Menzer says the company is making good progress and can make money based on its current operations.
Wal-Mart's international ventures have created exceptional opportunities for knowledge sharing. The company has picked up tips on merchandising as well as ideas for store formats. Just one example is a new bi-level store operated in a shopping mall in Manhasset, N.Y. that was modeled after international operations, primarily those in South Korea.
This global vision creates opportunities for Wal-Mart employees, according to Menzer. "People drive the global business," he told analysts at the Goldman Sachs conference. "We're developing our associates to become leaders by giving them national and global opportunities." In Japan, for example, the venture with No. 6 retailer Seiyu uses 52 ex-pats from other countries.
In foreign countries, where adapting to local cultures is crucial, Wal-Mart does a good job working with employees at the local level, according to Badillo. "I think its success has to do with developing good local management that can make decisions on the ground, instead of having them all made from Bentonville," he says.
Influence on suppliers
A key part of Wal-Mart's global strategy is procurement and sourcing. Last year the company ended its contract with worldwide import agent Pacific Resources Export Ltd. of Hong Kong and announced it would take global procurement in-house. Then early this year Wal-Mart announced the formation of an export business office, intended to make it easier to get U.S.-manufactured products into its stores overseas.
Oddly enough, one of its best deals so far has been in bananas. The company negotiated a deal with a single supplier, which lowered its costs on bananas everywhere from Asda to the United States.
For global sourcing, Wal-Mart has enlisted its top 50 global suppliers to work on reducing the cost of the supply chain and to share best practices. Among its top suppliers are Procter & Gamble and Gillette.
In some cases, Wal-Mart's efforts to secure the lowest prices for consumers have backfired in foreign markets because of resistance from established retailers. Mexican retailers are trying to get the government to intervene because they see Wal-Mart's price advantage as a monopoly. Three of Mexico's largest domestic retailers have announced a joint buying and operational alliance to compete with Wal-Mart.
In countries where Wal-Mart is not No. 1, the leading retailers are encouraging suppliers to support them on a fair-share basis, notes Flickinger. "It's particularly tough for sales managers in countries where Wal-Mart is weak. They're asking, why should we oversupport [Wal-Mart] stores that have low to no market share?"
Private label is also gaining importance in Wal-Mart's global strategy, according to Menzer. Wal-Mart strives for quality equal or superior to national brands with its own-label products, he says.
While the company has a series of private label food items and will likely continue to grow that segment, it's concentrating heavily on higher-priced nonfood brands, too. Some of its most successful brands so far include Kid Connection, featuring toys made in China, and George, a clothing brand started in the Asda stores and being introduced in other countries.Wal-Mart recently opened two free-standing George stores in the U.K. and has said it will consider other markets where the concept may perform well.
The company could see even higher gains in nonfood private label sales if it increased marketing for its brands, Flickinger says. "Wal-Mart has to move to more of an individual brand focus. One of the company's fundamental flaws is that they look at marketing as an expense, when they should look at it as an investment."
As Wal-Mart continues to expand its operations globally, observers are watching to see how the company is received and if consumers' opinions will move past their priority for low prices. Some observers have noted that environmentalists, advocates for organized labor, and others could serve as a stumbling block for Wal-Mart's growth.
Never one to be a step behind, the company has been investing in what's known as "reputation research" to discover how Americans view it. So far, some of the news has been unsettling: Many people see Wal-Mart as a place of dead-end jobs, and they don't necessarily think of the company as a good corporate citizen.
To counter that, Wal-Mart has launched television ads that portray it as a great place to work and focus on the charitable work it does in communities where it operates.
"We have a good opportunity to tell our story better," admitted Menzer at the Goldman Sachs conference.
Based on its low-price, customer-focused strategy, Bentonville, Ark.-based Wal-Mart Stores, Inc. has made a phenomenal trek in four decades from a small-town variety store in the rural South to a retail behemoth that today boasts $244.5 billion in annual sales, thousands of stores that span the globe, a powerful worldwide supplier and distribution network, some 1.3 million employees, and a leading position in retailing for food, toys, and jewelry, among other categories.
Wal-Mart, known for its enthusiasm—the company even has its own cheer—isn't content to stop there. Among its goals for the next few years: continued expansion of the supercenter format and further development of Neighborhood Markets, renewed focus on Sam's Club warehouse stores, increased growth in foreign markets, and a push in global branding. Those are merely the goals the company has shared publicly. Other avenues it may pursue, according to industry observers, include dollar stores (it's already testing formats in some of its stores), and free-standing drug stores.
All told, Wal-Mart could become the world's first trillion-dollar corporation in 10 years if it keeps up its compound growth rate and finds new streams of revenue, according to one analyst.
"This is a very different company than Wal-Mart of 1980 or 1985. They can be big and small, upscale and mass market at the same time. These are things they couldn't do 15 years ago," says Richard D. Hastings, v.p. and chief retail analyst at New York-based Bernard Sands. "In 1980, I don't think anybody there would have said, 'We're going to be a $250 billion company in 2002.'"
How does a company that big continue to grow? John Menzer, president and c.e.o. of Wal-Mart's international division, recently addressed that question at Goldman Sachs' 10th Annual Global Retailing Conference in New York. "We continue to focus on one store at a time, one customer at a time, and one employee at a time," he told analysts.
No doubt, the company's focus is on low prices for its customers and cost savings for itself. "We want to be the shopping choice always for our customers. We will always aggressively price our products and compete in the markets we are in," says Wal-Mart spokesman Tom Williams. "We seem to do best when we are constantly looking over our shoulder."
The strategy seems to have worked so far, but as Wal-Mart continues to pursue such phenomenal growth, it will encounter several challenges that could create obstacles along the way. Finding good labor—a hard task for any retail company nowadays—will be particularly important for Wal-Mart, since it will increasingly need to rely on store-level management to keep in touch with local merchandising and employee relations. And because it plans to remain nonunion, the job will only get tougher as animosity among labor groups swells.
Community opposition
Another notable challenge will be finding sites suitable for its large stores, as well as communities that are receptive to growth. Already in California and other densely populated areas, Wal-Mart is facing some opposition from residents who don't want megastores or have a negative opinion of Wal-Mart and its effect on local businesses. Globally, the company may also find more resistance from home-based retailers that have established themselves in foreign markets and resent its growing power with suppliers.
In addition, although Wal-Mart is the leading competitor in many retail categories, its massive strength will force some of its competitors to consolidate. That will create a tougher retail environment.
For now, the focus of Wal-Mart's U.S. strategy—supercenters—is proving to be invaluable. The nearly 1,400 supercenters now deliver almost two-thirds of the sales of Wal-Mart Stores' operating segment, which includes domestic department stores, supercenters, and Neighborhood Markets. The format has proved resilient during the tough economy, when many retailers have suffered, often at Wal-Mart's expense. In the second fiscal quarter, which ended in July, Wal-Mart posted a $2.44 billion profit on $62.6 billion in sales, and it reported that grocery sales at supercenters grew 23 percent.
A brilliant component of the supercenter format is its full grocery line, which drives customer traffic and shopping frequency, and ideally gets shoppers to visit the higher-priced nonfood aisles as well. The format, which averages around 190,000 square feet and includes pharmacies and other specialty departments, has been wreaking havoc in the supermarket industry as Wal-Mart enters competitive markets offering unbeatable prices. In a short time, it has gained the leading position in markets such as Dallas and Oklahoma City, and it can arguably do the same from coast to coast. According to estimates from Retail Forward, a consulting and market research firm in Columbus, Ohio, Wal-Mart is the equivalent of a 19 percent player in the supermarket industry. It also took the No. 1 slot in Progressive Grocer's Super 50 list of the nation's largest supermarket operators this year.
By 2007, Wal-Mart's supercenter count could very well reach 2,000 if the company keeps up its current plan of opening around 200 stores per year. That growth could give Wal-Mart control of 35 percent of food store industry sales, according to Retail Forward.
Looking at where Wal-Mart will go, there are huge opportunities west of the Mississippi—particularly in states like California, Washington, Oregon, Alaska, Arizona, and Colorado. In many cases, Wal-Mart is replacing its namesake discount stores with supercenters instead of building new units. "Wal-Mart's strategy is that two-thirds of the supercenters will be conversions of the existing discount stores they operate. That shows terrific insight," says Sandy Skrovan, v.p. of Retail Forward.
Still, as Wal-Mart continues this aggressive expansion away from some of its mainstay markets, some areas are showing signs of opposition. A few neighborhoods in California, where Wal-Mart plans to open at least 40 supercenters during the next four years, have passed ordinances against big-box stores to keep out supercenters, which they say contribute to noise and traffic.
California is also a hotbed of union opposition to Wal-Mart. Negotiations this month with United Food and Commercial Workers Local 770 in southern California, which represents employees at Stater Bros., Albertsons, and Safeway, will bring some of those issues to the table. "That's going to be a key contract, because Wal-Mart and Costco are nonunion," notes Burt Flickinger III, managing director at New York-based Strategic Resource Group. The labor differential between the unionized chains and Wal-Mart, including all benefit costs, tends to be anywhere from $2 to $4 higher per hour per part-time employee, and as much as $10 an hour for a full-time employee, he says.
Nonetheless, Wal-Mart has successfully gone into such heavily unionized areas as Philadelphia; Rochester, N.Y.; and Milwaukee, Flickinger notes. "Urban and metropolitan areas are largely fertile ground for Wal-Mart unless there's very strong cooperation between chains and independents working closely with labor leadership on a local and regional level," he says.
To get into urban markets, Wal-Mart has been working on tax-incentive financing, which gives it more political clout, Flickinger says. "I worked a lot on the case involving Wal-Mart's proposal to build in the historic Garden District in New Orleans. Wal-Mart was strategically smart in hiring the former governor of Louisiana, the former mayor of New Orleans, and a former U.S. senator. It helped them get federal funding, state funding, and local funding where the sales tax dollars from the supercenter pay for the cost of construction of the supercenter and shopping center, as well as the maintenance of the shopping center. The government puts up housing next to the shopping center, so they get guaranteed new customers. And Wal-Mart gets the property for free after 20 years."
Beyond supercenters, Wal-Mart is still testing the Neighborhood Market, a supermarket format the company says is meant for fill-in trips by supercenter customers and therefore is typically located nearby. Although the introduction has been conservative so far, observers expect a much more aggressive rollout, which means more competition for established food retailers.
"Wal-Mart is looking to go national with Neighborhood Markets in 2005," Flickinger says. "At that point, all their distribution centers will be built to support a national rollout."
Wal-Mart's distribution network is one of its greatest strengths. The company currently operates 21 food distribution centers and seven fresh/frozen DCs, and even with that number, it could serve more stores than its current base, observers agree. Overseeing the development of its national distribution network is Darwin Jones, a supermarket industry veteran who formerly held positions at Ahold, Kroger, and Ralphs.
The company's third food-related format is Sam's Club, a warehouse club for shoppers who want to stock up monthly. While the format in the last few years has seen declining same-store sales and intense competition from its rival, Costco, it seems to be in the midst of a turnaround, thanks in part to a newly installed management team. The new brass is refocusing efforts on small-business customers to set Sam's Clubs apart. Menzer has said the company's strategic goal is to get 60 percent of revenue from business members.
Wal-Mart may also be considering several smaller, alternative retail formats for its U.S. operations, according to Retail Forward's Skrovan. "We see them beginning to explore in more depth smaller formats. There's a strong likelihood that they'll explore rolling out their own drug chain and/or dollar store chain, and will get more into the convenience/fueling station business." Those formats would raise fewer red flags with local opposition in urban areas, she notes. The industries don't have as much of a union presence either, which would be another benefit. Wal-Mart could also get into foodservice as an expansion of convenience retailing, Skrovan adds, although that would likely be further down the road. Its experience with former subsidiary McLane Co., a wholesale distributor whose business includes foodservice, could come in handy if that were the case. Earlier this year, Wal-Mart sold the subsidiary to Berkshire Hathaway.
Global growth
Outside of its U.S. operations, Wal-Mart is steadily and cautiously staking its claim in a number of international markets to help ensure long-term growth. So far, the results have been phenomenal. It now operates more than 1,000 units in nine countries, and sales approached $41 billion this year. "If Wal-Mart International were a separate company, it would be No. 33 on the Fortune 500," Menzer told Goldman Sachs analysts. "Our challenge is to make up one-third of the company's sales," he added, noting that part of the strategy is to "take our global scale to the local level."
"Wal-Mart has shown overall a good capability to grow internationally, but it hasn't been a uniform success by any means," observes global retail specialist Frank Badillo of Retail Forward. Some of its most successful ventures include its acquisition of Asda in the United Kingdom, which recently progressed to the No. 2 spot among U.K. retailers, and Mexico, where it entered through a joint venture with Cifra and is now the top-ranked retailer, he notes.
Germany has been the most difficult market for Wal-Mart to break into, because of more stringent retail regulations and plenty of low-price competitors.
Still, Wal-Mart seems committed to keep trying. Menzer says the company is making good progress and can make money based on its current operations.
Wal-Mart's international ventures have created exceptional opportunities for knowledge sharing. The company has picked up tips on merchandising as well as ideas for store formats. Just one example is a new bi-level store operated in a shopping mall in Manhasset, N.Y. that was modeled after international operations, primarily those in South Korea.
This global vision creates opportunities for Wal-Mart employees, according to Menzer. "People drive the global business," he told analysts at the Goldman Sachs conference. "We're developing our associates to become leaders by giving them national and global opportunities." In Japan, for example, the venture with No. 6 retailer Seiyu uses 52 ex-pats from other countries.
In foreign countries, where adapting to local cultures is crucial, Wal-Mart does a good job working with employees at the local level, according to Badillo. "I think its success has to do with developing good local management that can make decisions on the ground, instead of having them all made from Bentonville," he says.
Influence on suppliers
A key part of Wal-Mart's global strategy is procurement and sourcing. Last year the company ended its contract with worldwide import agent Pacific Resources Export Ltd. of Hong Kong and announced it would take global procurement in-house. Then early this year Wal-Mart announced the formation of an export business office, intended to make it easier to get U.S.-manufactured products into its stores overseas.
Oddly enough, one of its best deals so far has been in bananas. The company negotiated a deal with a single supplier, which lowered its costs on bananas everywhere from Asda to the United States.
For global sourcing, Wal-Mart has enlisted its top 50 global suppliers to work on reducing the cost of the supply chain and to share best practices. Among its top suppliers are Procter & Gamble and Gillette.
In some cases, Wal-Mart's efforts to secure the lowest prices for consumers have backfired in foreign markets because of resistance from established retailers. Mexican retailers are trying to get the government to intervene because they see Wal-Mart's price advantage as a monopoly. Three of Mexico's largest domestic retailers have announced a joint buying and operational alliance to compete with Wal-Mart.
In countries where Wal-Mart is not No. 1, the leading retailers are encouraging suppliers to support them on a fair-share basis, notes Flickinger. "It's particularly tough for sales managers in countries where Wal-Mart is weak. They're asking, why should we oversupport [Wal-Mart] stores that have low to no market share?"
Private label is also gaining importance in Wal-Mart's global strategy, according to Menzer. Wal-Mart strives for quality equal or superior to national brands with its own-label products, he says.
While the company has a series of private label food items and will likely continue to grow that segment, it's concentrating heavily on higher-priced nonfood brands, too. Some of its most successful brands so far include Kid Connection, featuring toys made in China, and George, a clothing brand started in the Asda stores and being introduced in other countries.Wal-Mart recently opened two free-standing George stores in the U.K. and has said it will consider other markets where the concept may perform well.
The company could see even higher gains in nonfood private label sales if it increased marketing for its brands, Flickinger says. "Wal-Mart has to move to more of an individual brand focus. One of the company's fundamental flaws is that they look at marketing as an expense, when they should look at it as an investment."
As Wal-Mart continues to expand its operations globally, observers are watching to see how the company is received and if consumers' opinions will move past their priority for low prices. Some observers have noted that environmentalists, advocates for organized labor, and others could serve as a stumbling block for Wal-Mart's growth.
Never one to be a step behind, the company has been investing in what's known as "reputation research" to discover how Americans view it. So far, some of the news has been unsettling: Many people see Wal-Mart as a place of dead-end jobs, and they don't necessarily think of the company as a good corporate citizen.
To counter that, Wal-Mart has launched television ads that portray it as a great place to work and focus on the charitable work it does in communities where it operates.
"We have a good opportunity to tell our story better," admitted Menzer at the Goldman Sachs conference.