News / Americas

    Lost in Translation: Wal-Mart Stumbles Hard in Brazil

    A man talks on his mobile phone in front of a Wal-Mart store in Sao Paulo, Brazil, Feb. 16, 2016.
    A man talks on his mobile phone in front of a Wal-Mart store in Sao Paulo, Brazil, Feb. 16, 2016.
    Reuters

    When Wal-Mart Stores Inc. first expanded into Brazil's Midwestern farm-belt city of Campo Grande seven years ago, the economy was booming and executives were eager to open stores even in sub-prime locations on one-way streets heading out of town.

    It didn't last. At the end of December, the U.S. retailer closed both of its Maxxi brand cash-and-carry stores in Campo Grande as part of a restructuring that shuttered 60 locations across Brazil, including some Supercenters. Shoppers said the stores could not compete on assortment, price or location.

    "It was never clear who Maxxi was for. It wasn't cheap enough for the poor. But there was no appeal for the middle class," said Ordecy Gossler, 40, a public accountant filling his cart with cleaning supplies and toilet paper at Atacadao, a rival chain run by France's Carrefour.

    "When they announced in December that both Maxxis were closing, no one in my office knew where they were."

    Today, Wal-Mart has just one Supercenter left in this city of 850,000 people, whose demographic of thrifty shoppers had once seemed suited to the world's largest retailer. It shuttered the city's other one at the end of the year, as traffic dwindled in the shopping mall it was meant to anchor.

    The retreat from Campo Grande is emblematic of Wal-Mart's broader issues in Brazil, a once-red-hot destination for foreign retailers and other companies that has turned stone cold. And the lackluster performance in Latin America's largest economy shows how tactics that helped Wal-Mart build success in the U.S. sometimes get badly lost in translation overseas.

    A former Wal-Mart Store is pictured in Campo Grande, Brazil, Jan. 27, 2016. Brazil's slumping economy has forced the U.S. retailer to shutter 60 locations across the country.
    A former Wal-Mart Store is pictured in Campo Grande, Brazil, Jan. 27, 2016. Brazil's slumping economy has forced the U.S. retailer to shutter 60 locations across the country.

    International results have been anemic, despite $22 billion in capital investment over the past five years. Wal-Mart last year generated a 4.5 percent operating profit margin from international markets, well below the 7.4 percent return posted from the U.S.

    Seeking higher returns, Wal-Mart CEO Doug McMillon in October announced a strategic review of the company's global assets. Some securities analysts have speculated Wal-Mart could exit Brazil, as well as other markets in Latin America where it is already closing an additional 55 stores.

    The pullback in Brazil also has some worrying echoes of previous Wal-Mart debacles overseas, including South Korea and Germany, two markets it abandoned in 2006.

    Labor problems

    In Brazil, it has been dogged by poor locations, inefficient operations, labor troubles and uncompetitive prices - with some of the problems baked in during an aggressive, decade-long growth surge - according to interviews with a dozen former and current Wal-Mart executives, as well as analysts, shoppers and store employees.

    Wal-Mart would not comment on financial results from Brazil ahead of the company's quarterly earnings on February 18. People familiar with the numbers told Reuters that Wal-Mart has posted operating losses in Brazil for each of the past seven years.

    Jo Newbould, a spokeswoman for the retailer, said the store closures were part of its efforts to "actively manage" its global assets and that it has been working to lower costs in Brazil.

    David Cheesewright, head of Wal-Mart's international operations, said in an interview that it has no plans to quit Brazil.

    He pointed to the company's decision to invest in completing an integration of legacy computer systems into the wider Wal-Mart platform as evidence of a commitment to the market.

    "That's not the act of someone who is packing up the firm for other purposes," he said.

    Cheesewright expressed optimism about a turnaround.

    "It's a market that has always been high on potential, but has been a roller-coaster ride in terms of its performance," he said. "It happens to be on a downturn at the moment, and I'm sure it will do what it always has done, which is improve."

    Runaway growth

    Wal-Mart first entered Brazil in 1995 and grew in measured steps for nearly a decade. That changed in 2004-2005, when it spent about $1 billion to buy two retailers, Bompreco S.A. Supermercados do Nordeste and Sonae Distribuicao Brasil S.A.

    The deals expanded Wal-Mart's operations into the northeast and south of Brazil, and marked the beginning of a spending spree aimed at building a national footprint. With the takeovers came an array of brands: Wal-Mart currently operates under nine different store banners in Brazil.

    At the height of the expansion, former Wal-Mart executives said, a land rush mentality took hold.

    Brazil's thriving economy in those years convinced executives the biggest risk lay in moving too slowly.

    In response, they approved new store sites based on increasingly rosy forecasts of future sales.

    "Most executives didn't have the voice to say, 'Don't open this store; let's not approve more stores,'" a former finance executive recalled. "Why not? Because Brazil was the new country. We needed to put investment in before others do."

    In a six-year stretch through the fiscal year ending January 2013, Wal-Mart doubled its locations, reaching nearly 560 at its peak.

    The rapid expansion strained Wal-Mart's logistics - traditionally one of its strong points in the U.S. but a drag on performance in Brazil.

    In some cases, delivery trucks drove days to reach distant stores from centrally located warehouses.

    Executives from headquarters bickered with those running some kinds of stores about who should bear the distribution costs, the former finance executive said.

    Amid the focus on growth, executives never fully integrated the legacy information systems from Bompreco and Sonae.

    Disruptions in communication between headquarters and the many different store types allowed inefficiencies to take root.

    Buyers, for instance, found themselves using three laptops, one each for the two legacy systems and another for the Wal-Mart platform, people familiar with the matter said.

    Tax issues

    Cheesewright said he had put a priority on systems and would complete the integration by the middle of 2016. He said that would allow Brazil to benefit fully from system and process advancements made in the U.S., helping it to lower costs.

    He also said Wal-Mart was getting a grip on Brazil's complex tax system and litigious labor market, problems that have dogged it for years. In January 2014 Wal-Mart disclosed that unforeseen Brazil tax assessments and employment claims tied to a cost-cutting drive would slice 2 percent off its annual earnings globally. Labor claims in Brazil also hurt its results in the
    third quarter of the financial year that has just ended.

    Cheesewright said it was implementing a plan, including putting advanced time-keeping equipment in stores and getting workers to formally clock in, which should lower the risk of worker lawsuits.

    "A lot of the stuff in Brazil is just the basic stuff: do people properly clock out for their lunch breaks, do you manage overtime correctly, do they have the right breaks between shifts?" he said. "It's a lot of basic blocking and tackling."

    Wal-Mart, whose sales at existing stores in the country edged down 0.6 percent in the August-October quarter, isn't the only retailer hurting in Brazil.

    With the economy in a deepening recession, market leader GPA, controlled by France's Casino, suffered a 2.3 percent sales drop at existing stores in the
    October-December quarter and has said it would slash investments in 2016.

    Carrefour bucked the trend, posting 8.5 percent growth in sales at existing stores, thanks to investments in hypermarkets and growth at Atacadao, the country's biggest cash-and-carry chain.

    Beaten on acquisition

    The cash-and-carry format, which features bulk sales of food and other items paid for in cash and carried out by the customers themselves, has emerged as a rare bright spot in Brazilian retail.

    Cheesewright said Maxxi was now one of Wal-Mart's best performing formats after it had narrowed its focus to small business owners, giving up on competing head-to-head with the larger warehouses of Atacadao, which caters to both business shoppers and an increasing number of thrifty families.

    But after paring back to 44 locations, Maxxi gives Wal-Mart far less exposure to the cash-and-carry business than Atacadao and GPA's Assai, which have 123 and 95 stores, respectively.

    Some analysts and former executives say one of Wal-Mart's biggest missteps was losing a bidding match for Atacadao to Carrefour, which paid $1.1 billion for it in 2007.

    Cheesewright said Wal-Mart was piloting a larger version of its Todo Dia discount format in part as a way to attract some of the family shoppers now using rival cash-and-carry stores. Other plans include renovating supermarkets with a slightly smaller assortment and a focus on fresh food.

    The task of making all that happen falls to Flavio Cotini, who was promoted this month from chief financial officer to head the Brazilian operations. The reshuffle marked the fourth leadership change in Brazil since 2008 - a lack of continuity at the top that has exacerbated problems, including hindering efforts to integrate operations, former executives said.

    "When you build a castle you build the foundation first. Wal-Mart did it in reverse in Brazil," a former senior executive in the international business said. "It is so hard to build a national chain when your system backbone is not in place."

    You May Like

    Escalation of Media Crackdown in Turkey Heightens Concerns

    Critics see 'a new dark age' as arrests of journalists, closures of media outlets by Erdogan government mount

    Russia Boasts of Troop Buildup on Flank, Draws Flak

    Russian military moves counter to efforts to de-escalate tensions, State Department says

    What Take-out Food Reveals About American History

    From fast-food restaurants to pizza delivery, here's what the history of take-out food tells us about changes in American society

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Immigrant Delegate Marvels at Democratic Processi
    X
    Katherine Gypson
    July 27, 2016 6:21 PM
    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video Immigrant Delegate Marvels at Democratic Process

    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video A Life of Fighting Back: Hillary Clinton Shatters Glass Ceiling

    Hillary Clinton made history Thursday, overcoming personal and political setbacks to become the first woman to win the presidential nomination of a major U.S. political party. If she wins in November, she will go from “first lady” to U.S. Senator from New York, to Secretary of State, to “Madam President.” Polls show Clinton is both beloved and despised. White House Correspondent Cindy Saine takes a look at the life of the woman both supporters and detractors agree is a fighter for the ages.
    Video

    Video Dutch Entrepreneurs Turn Rainwater Into Beer

    June has been recorded as one of the wettest months in more than a century in many parts of Europe. To a group of entrepreneurs in Amsterdam the rain came as a blessing, as they used the extra water to brew beer. Serginho Roosblad has more to the story.
    Video

    Video First Time Delegate’s First Day Frustrations

    With thousands of people filling the streets of Philadelphia, Pennsylvania for the 2016 Democratic National Convention, VOA’s Kane Farabaugh narrowed in on one delegate as she made her first trip to a national party convention. It was a day that was anything but routine for this United States military veteran.
    Video

    Video Commerce Thrives on US-Mexico Border

    At the Democratic Convention in Philadelphia this week, the party’s presumptive presidential nominee, Hillary Clinton, is expected to attack proposals made by her opponent, Republican presidential nominee Donald Trump, to build a wall along the U.S.-Mexico border. Last Friday, President Barack Obama hosted his Mexican counterpart, President Enrique Peña Nieto, to underscore the good relations between the two countries. VOA’s Greg Flakus reports from Tucson.
    Video

    Video Film Helps Save Ethiopian Children Thought to be Cursed

    'Omo Child' looks at effort of African man to stop killings of ‘mingi’ children
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Calm the Waters: US Doubles Down Diplomatic Efforts in ASEAN Meetings

    The United States is redoubling diplomatic efforts and looking to upcoming regional meetings to calm the waters after an international tribunal invalidated the legal basis of Beijing's extensive claims in the South China Sea. VOA State Department correspondent Nike Ching has the story.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.

    Special Report

    Adrift The Invisible African Diaspora

    More Americas News

    After Plumbing, Electrical Problems, Australian Athletes Move into Rio Olympic Village

    Head of Australian Olympic delegation praises repair progress adding workers are 'absolutely really good'

    Missing ex-Guantanamo Detainee Reappears in Venezuela

    He is one of six former Guantanamo prisoners who were resettled in Uruguay after being released by U.S. authorities in 2014; he has repeatedly expressed his unhappiness at his life in Uruguay

    Venezuela Critics Press for Progress on Presidential Recall

    Socialist government digging in its heels to stop a presidential recall vote as it fights to hold onto power amid an economic collapse

    Brazil Prosecutor Freezes $11.7M of Facebook Funds Due to WhatsApp Case

    Facebook failed to comply with court order to supply data on users of company's messaging service who are under criminal investigation

    No Amnesty for War Rapists: Colombia Peace Talks Turn to Women's Rights

    Government, FARC rebels have pledged to improve access to land for women and ensure perpetrators of sexual violence will not be eligible for amnesty as part of ongoing peace talks

    UN Asks Brazil Authorities to Investigate Journalist's Death

    UNESCO's Director-General Irina Bokova condemns the killing of Joao Miranda do Carmo, the third reporter to die in Brazil this year