A lot has been said about the fall of Walmart in Brazil. Some sides attribute the fall to the Brazilian difficulty of market access. If we would have to pick a side, we would probably be with the ones who are attributing the fall to Walmart’s inability to adapt to the local market. After all, it is not only in Brazil that Walmart has failed: it is also in Germany, in South Korea, in China.
According to their website, prior to the closures in Brazil, the chain had 544 stores, 200 pharmacies, 50 restaurants and 10 gas stations in 18 states and the country’s capital, in addition to an electronics business. Walmart entered the country in 1995, and over the following ten years grew its business at measured steps. When Brazil’s economic boom started in the early ‘00s, around 2004-05, the retailer started a spending spree with local supermarkets chains acquisitions and expansion through other parts of the country, like the then ‘underdeveloped’ Northeast. This was all about to change. Two decades after entering South America’s biggest market, Walmart Stores’ Brazil unit is still struggling to connect with consumers and losing money.
Walmart has struggled to challenge the dominance of more established supermarket chains such as Companhia Brasileira de Distribuição (GPA SA) and Carrefour, which have deep roots in key cities like Rio de Janeiro and Sao Paulo. Apart from the deep roots that they have and the obvious cultural ties to the locals, the Brazilian consumers seek them out as they have the lowest prices for goods and they are willing to go to multiple stores to save money, which circumvents Walmart’s one-stop-shopping business plan. The Brazilian consumers do not mind hopping from place to place, in order to get the best deal that they can get. Brazil can also be a very hard country to get into, as it is not the most business friendly place in the world and it stands low in the business environment friendliness world rank: hard taxation and endless bureaucratic procedures are not making things easy for foreign investors and retailers. However, other retailers such as Nike or Procter & Gamble managed to thrive in Brazil. What is it then that Walmart could not do?
For example, Walmart hasn’t integrated the systems and logistics of its local chains enough to wring out costs as it has done so effectively back home. China is equally problematic, forcing Walmart to change its strategy to fit local needs – and Walmart didn’t. At least 29 stores will be closed in the country as management adjusts to the desire for high-quality products, not low prices that locally imply cheapness. In addition to that, it is important to mention here that the Brazilian customers also seek out the “convenience” factor, which means that they will prefer a store located in their neighborhood, instead of a store that is not local, not cheaper and not time-saving. Let’s face it: it is way easier for a customer to walk around a supermarket for 5 minutes and get what he/she needs, instead of losing himself/herself in a gigantic store. The hyperinflation of the 1980s that once drove Brazilians to stock up at large stores such as Walmart’s no longer exists.[i]
Why can’t Walmart compete?
The factors that led to Walmart’s success in the US simply cannot be translated overseas. Different customers, different needs, different markets, different cultures. In the US, buying power has always led to lower costs for Wal-Mart, but integrating acquisitions and building a business from scratch makes that same scale harder to leverage overseas, as it’s sadly finding out in Brazil. [ii]In that sense, the finance in other countries cannot be the same or even compared to the domestic one.
Moreover, it seems that Walmart never really understood the Brazilian, the German, the South Korean or the Chinese customer. The same success that it has in the US cannot be easily translated to other countries, especially if the company does not adapt locally. And that has been the biggest mistake of Walmart. In the case of Brazil, Walmart has not been attractive price wise to neither the poor, nor the middle class buyer. It placed a higher focus on the store expansion instead of the customer needs and the market understanding, which ultimately led to its gradual fall. In the time of the worst recession in Brazil’s history, the time has come for Walmart to realize that the customer comes first. In that sense, it can possibly regain some of its’ Brazilian business afloat.
[i] “Why Walmart hasn’t conquered Brazil”, Bloomberg, http://www.bloomberg.com/news/articles/2014-05-08/why-wal-mart-hasnt-conquered-brazil
[ii] “Why Is Walmart Failing in Emerging Markets?”, The Motley Fool, http://www.fool.com/investing/general/2014/04/28/why-is-wal-mart-failing-in-emerging-markets.aspx