Description

Wal-Mart Takes Its Time on Expanding in Africa;

Massmart subsidiary builds slowly from base in South

Africa, even as continent's consumer class grows

Wexler, AlexandraAuthor Information. Wall Street Journal (Online); New York, N.Y. [New York,

N.Y] 09 Feb 2017: n/a.

JOHANNESBURG--After some costly stumbles on its march into developing markets, Wal-Mart

Stores Inc. has adopted a different strategy for Africa: taking it easy.

When the U.S. retail behemoth bought a $2.4 billion majority stake in South African retailer

Massmart Holdings Ltd. in 2011, it trumpeted the potential of the continent's burgeoning consumer

class. At the time, Massmart had 26 stores outside its home market; in the five years since, it has

added only 13 of its signature large destination-type outlets. In that same span, by contrast, rival

Shoprite Holdings Ltd. has opened 182 of its mostly smaller, grocery-centric stores outside South

Africa, for a total of 375.

Some analysts and investors wonder whether Massmart's slow expansion means Wal-Mart is losing

interest in its African venture. But Guy Hayward, who took over as Massmart's chief executive in

June 2014, says the modest pace is part of "a very deliberate strategy" and not a sign of weakness.

"If being sort of Steady Eddie is described as a criticism, I'm happy to be criticized," said Mr.

Hayward, a South African native who joined Massmart in 2000.

In August, Massmart announced plans to open five new stores in Africa beyond its home market

through 2017, while Shoprite set out to add 46 stores outside South Africa in the 12 months to June

2017. Mr. Hayward notes that its outlets--most of which bear its Game and Builders Warehouse

brands--average about 3.5 times the sales of a typical Shoprite store.

Some retailers who rushed into African markets have paid a steep price. Woolworths Holdings Ltd.,

an upmarket retailer of groceries and clothing in South Africa, closed its three Nigerian stores in late

2013, citing high rents, a lack of shopping malls and intense bureaucracy. In 2011, Pick n Pay

Stores Ltd. entered Mozambique and Mauritius, but exited both markets two years later, citing

unprofitability and differences with its respective franchisees.

More broadly, recent sharp fluctuations in African currencies--a result of the commodities crisis--

have jolted businesses including retailers, especially because loans in many African countries are

dollar-denominated. And inflation, a malady in various economies on the continent, has cut into the

buying power of middle-class consumers.

Wal-Mart's slow but deliberate approach to Africa diverges from past strategies in developing

markets, where aggressive expansions hit hurdles.

Last year, Wal-Mart closed 115 outlets in Latin America, leaving its store count in the region at

roughly 4,000. In China, the company has slowed store growth, and in June sold its Yihaodian

website for a stake in local online retailer JD.com Inc.

A five-year U.S. investigation into possible foreign bribery has dogged Wal-Mart in Mexico; and the

probe, which is related to store openings, has also pointed to possible misconduct in Brazil and in

India. Wal-Mart, which didn't respond to requests for comment on its African strategy, has said it is

cooperating fully in the various investigations. But the company's efforts to improve compliance have

slowed expansion in some markets, according to a former employee familiar with the situation.

Massmart's Mr. Hayward concedes that the chain's approach in Africa is partly born of necessity.

Sketchy land registries, sudden changes to local laws and property owners holding out for a

bonanza are only a few of the hindrances to doing business.

"The rule of thumb is probably about three years from first meeting a developer on a dusty piece of

land to opening the stores," the 51-year-old CEO said. "This is their once-in-a-lifetime payday and

valuations are crazy."