Can Wal-Mart Succeed In Brazil?

Reports suggest that Wal-Mart (NYSE:WMT) is investing $320 million over the next three years to renovate its hypermarkets in Brazil, where it has been struggling to grow revenues. Its international business accounts for nearly 25% of the company’s total revenues, and emerging markets can provide a boost to this business. While Brazil holds strong potential, Wal-Mart has not been able to establish itself in the region. With some consumers finding it difficult to reach hypermarkets given heavy traffic Brazil’s cities, neighborhood stores are increasingly becoming the “go to” place for daily shopping requirements. Further, retail stores which offer heavy discounts on bulk purchases are gaining traction in the region. While Wal-Mart is investing in Brazil to redesign its stores, we believe it will take more than that for the company to establish itself as a strong player in the region.

See our complete analysis for Wal-Mart

Competition From Smaller Stores, Bulk Discount Retailers

“Cash and Carry” stores in Brazil are increasingly attracting consumers who prefer to buy in bulk to get discounts. Revenues from these stores have been growing significantly, and in 2014 they accounted for 15% of Brazil’s grocery retail sector, up from 10% in 2013. Wal-Mart has struggled somewhat to compete in the market, as customers have generally preferred bulk discounts for large shopping trips, and the convenience of local stores for smaller quantities. While Wal-Mart has its own cash and carry brand “Maxxi” in Brazil, it has not been able to withstand competitive pressures from Carrefour and GPA. However, with its recent investment, the company is looking to build a store network that can succeed over the long term as the company consolidates its operations in the region and builds efficiency.

We expect Wal-Mart’s international revenues per square foot to decline over our forecast period as the company expands in emerging markets, where revenues are lower.

However we expect the company to increase its international stores at a steady pace over our forecast period.

Brazil has been tough for Wal-Mart, but the company is not looking to withdraw from the world’s fifth largest consumer market. The current investment can give the company a boost, but it needs to do a lot more in the region to drive revenues from this emerging economy in the long term.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research