HOW WALMART MISSED THE MARK IN BRAZIL

Global
Retail

Walmart is one of the largest retailers in the world. In 2021, the company posted $572.8 billion USD in revenue from its 10,500 locations. Since the first Walmart opened in 1962, the company has enjoyed rapid growth. It currently operates in over 24 markets. Walmart entered the Brazilian market in the late 1990s. At its peak, the company operated 550 stores across the South American country. In 2018, Walmart closed 120 of its stores in the market after losing money for 7 consecutive years. Walmart then announced it would be selling 80% of its remaining business in Brazil to a private equity firm. According to Euromonitor, Walmart’s market share never surpassed 2.5% in Brazil. Walmart struggled to gain traction in this emerging market because the company did not understand the unique shopping habits of Brazilian consumers, acquired poor store locations, and failed to adopt competitive pricing.

POOR WALMART STORE LOCATIONS

As Brazil transitioned into a free market economy in the 1990s after implementing a series of economic reforms in the 1980s, international retailers like Walmart saw an opportunity to expand into the largest economy in South America. In 1995, Walmart opened its first location in Brazil. In 2004, Walmart acquired 118 stores from Bompreco’s, a struggling Brazilian retail brand, for $500 million USD. During 2005, Walmart closed a $757 million deal to acquire 140 stores from Sonae’s, another Brazilian retail brand. Walmart was betting big and executives felt this emerging market had tremendous potential. These deals allowed Walmart to expand rapidly and become a major national player in the market. Almost overnight, Walmart was “operating stores in 17 of Brazil’s 26 states.” Unfortunately, these stores were not in profitable locations. Some acquired stores were located on “one-way streets leaving town”, which made it very difficult for customers to visit locations when they wanted to shop.  The acquired brands were struggling for a reason and were failing to drive any significant foot traffic, which severely hampered Walmart’s growth in the market.

UNIQUE CONSUMER SHOPPING HABITS

When Walmart was making these acquisitions, Vicente Trius, the CEO of Walmart Brazil, said, “We are looking forward to getting to know the habits of local customers.” This statement highlights Walmart’s strategic blunder. Executives were placing execution ahead of strategy. Brazil is a very unique market. The one-stop-shop American-style Walmart stores were very strange to Brazilian consumers because they are used to shopping at several stores to find the best deals. Brazilians also don’t typically shop online, which was a major differentiator for Walmart in Brazil. In 2018, Walmart announced it was closing its Brazilian e-commerce platform due to low sales volume. Major competitors in Brazil, like the French retailer Carrefour, utilize robust customer loyalty programs like exclusive store credit cards, which can only be used at stores owned by Carrefour. These store credit cards created strong financial incentives for customers to stay with existing retailers. There are 200 million active Carrefour cards in Brazil, which posed a significant challenge to Walmart as it entered the market.

UNCOMPELLING PRICING STRUCTURE

The Brazilian market is extremely price sensitive. Consumers are attracted to discounts and promotions. Walmart’s “promise of low everyday prices was not a compelling” call to action for consumers. In the mid-2010s, Brazil experienced a major economic recession, which forced Brazilians to become even more price sensitive. The rise of cash-and-carry format stores allowed Brazilians to be extremely frugal in a way Walmart’s business model simply couldn’t compete with. In an interview, David Cheesewright, Walmart’s head of international operations, said, “It’s a market that has always been high on potential, but has been a roller-coaster ride in terms of its performance.” Walmart’s uncompetitive pricing was due in part to inefficient logistics, which increased the company’s operating costs. Walmart’s rapid expansion in early 2000s “strained Wal-Mart’s logistics - traditionally one of its strong points in the U.S. but a drag on performance in Brazil.”

Walmart’s failure illustrates the importance of strategy before execution. Walmart did not take the necessary time to identify the unique forces that shape Brazilian consumer behavior. At CASTUS, we have experience growing brands all over the world, so we know what critical data points and key factors need to be considered when planning for any international expansion. Our team provides strategic direction and streamlines the expansion process to optimize resources as you grow. Have questions about international expansion? Let’s talk.

Walmart is one of the largest retailers in the world. In 2021, the company posted $572.8 billion USD in revenue from its 10,500 locations. Since the first Walmart opened in 1962, the company has enjoyed rapid growth. It currently operates in over 24 markets. Walmart entered the Brazilian market in the late 1990s. At its peak, the company operated 550 stores across the South American country. In 2018, Walmart closed 120 of its stores in the market after losing money for 7 consecutive years. Walmart then announced it would be selling 80% of its remaining business in Brazil to a private equity firm. According to Euromonitor, Walmart’s market share never surpassed 2.5% in Brazil. Walmart struggled to gain traction in this emerging market because the company did not understand the unique shopping habits of Brazilian consumers, acquired poor store locations, and failed to adopt competitive pricing.

POOR WALMART STORE LOCATIONS

As Brazil transitioned into a free market economy in the 1990s after implementing a series of economic reforms in the 1980s, international retailers like Walmart saw an opportunity to expand into the largest economy in South America. In 1995, Walmart opened its first location in Brazil. In 2004, Walmart acquired 118 stores from Bompreco’s, a struggling Brazilian retail brand, for $500 million USD. During 2005, Walmart closed a $757 million deal to acquire 140 stores from Sonae’s, another Brazilian retail brand. Walmart was betting big and executives felt this emerging market had tremendous potential. These deals allowed Walmart to expand rapidly and become a major national player in the market. Almost overnight, Walmart was “operating stores in 17 of Brazil’s 26 states.” Unfortunately, these stores were not in profitable locations. Some acquired stores were located on “one-way streets leaving town”, which made it very difficult for customers to visit locations when they wanted to shop.  The acquired brands were struggling for a reason and were failing to drive any significant foot traffic, which severely hampered Walmart’s growth in the market.

UNIQUE CONSUMER SHOPPING HABITS

When Walmart was making these acquisitions, Vicente Trius, the CEO of Walmart Brazil, said, “We are looking forward to getting to know the habits of local customers.” This statement highlights Walmart’s strategic blunder. Executives were placing execution ahead of strategy. Brazil is a very unique market. The one-stop-shop American-style Walmart stores were very strange to Brazilian consumers because they are used to shopping at several stores to find the best deals. Brazilians also don’t typically shop online, which was a major differentiator for Walmart in Brazil. In 2018, Walmart announced it was closing its Brazilian e-commerce platform due to low sales volume. Major competitors in Brazil, like the French retailer Carrefour, utilize robust customer loyalty programs like exclusive store credit cards, which can only be used at stores owned by Carrefour. These store credit cards created strong financial incentives for customers to stay with existing retailers. There are 200 million active Carrefour cards in Brazil, which posed a significant challenge to Walmart as it entered the market.

UNCOMPELLING PRICING STRUCTURE

The Brazilian market is extremely price sensitive. Consumers are attracted to discounts and promotions. Walmart’s “promise of low everyday prices was not a compelling” call to action for consumers. In the mid-2010s, Brazil experienced a major economic recession, which forced Brazilians to become even more price sensitive. The rise of cash-and-carry format stores allowed Brazilians to be extremely frugal in a way Walmart’s business model simply couldn’t compete with. In an interview, David Cheesewright, Walmart’s head of international operations, said, “It’s a market that has always been high on potential, but has been a roller-coaster ride in terms of its performance.” Walmart’s uncompetitive pricing was due in part to inefficient logistics, which increased the company’s operating costs. Walmart’s rapid expansion in early 2000s “strained Wal-Mart’s logistics - traditionally one of its strong points in the U.S. but a drag on performance in Brazil.”

Walmart’s failure illustrates the importance of strategy before execution. Walmart did not take the necessary time to identify the unique forces that shape Brazilian consumer behavior. At CASTUS, we have experience growing brands all over the world, so we know what critical data points and key factors need to be considered when planning for any international expansion. Our team provides strategic direction and streamlines the expansion process to optimize resources as you grow. Have questions about international expansion? Let’s talk.

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Global
Retail