Recent international failures -- a background

Back in 2006, Wal-Mart's international operations were in a precarious position. It's not that the retailer was failing internationally, but two of the most promising markets weren't working out as planned. In South Korea, Wal-Mart had to pack up its tents and exit the country in May 2006 as sales just weren't working out.

In many ways, the retailer failed to anticipate how strong the local retail culture was in that country, and the close-knit relationships many retailers and their customers enjoyed. Bringing in some of Wal-Mart's 'big-box' flavor did little to dissuade South Korean customers from leaving those established relationships.

Just a few short months later in July, Wal-Mart announced that it would be exiting the German market and closing more than 80 stores there. Just like in the South Korean example, Wal-Mart decided to sell its operation to a local conglomerate and completely exit the market.

This is telling: If MetroAG (the buyer) could compete by buying Wal-Mart's store assets in Germany, why couldn't Wal-Mart make them work? Local customs? Consumer retail culture? Whatever the reason, Wal-Mart kept its other international operations but just didn't have the luck it needed to compete in South Korea or Germany.

Recent successes -- a different take

Then in 2007, Wal-Mart emphasized international growth and highlighted successes around the world every time quarterly results were announced. To many of us, this seemed odd, seeing as the retailer was coming off a year with two high-profile international failures, but was still trumpeting international sales as a growth engine for the future.

It needed those words though, as same-store sales started missing estimates, competitor Target Corp. (NYSE: TGT) began pushing past same-store sales estimates and Wal-Mart pundits everywhere started wondering how the massive retailer could spark more growth in its largest market, the United States. Even though Wal-Mart was growing by the billions of dollars in terms of revenue, it's hard to grow a $340 billion business at a growth rate anywhere near approaching double digits. Don't tell that to retail naysayers, though.

And then February 2007 comes along and Wal-Mart reports its first-ever $100 billion quarter. First of all, that's a milestone for any company in any industry, and especially for a retailer. Sales at Wal-Mart's U.S. operations grew in the retailer's fourth quarter rose only 5% to $67.4 billion -- but international sales spiked 19% to $27 billion. In meaningful financial terms, Wal-Mart's operating income internationally increased over 14% to more than $1.7 billion, or 23% of the global total.

Are Wal-Mart's international sales set to catch up to its domestic sales any time soon? That's what Wal-Mart execs are hoping for, of course. Wal-Mart can only saturate itself so far here in the U.S. before growth rates are impossible to maintain at almost any level.

International growth, on the other hand, is virtually untapped in a manner of speaking. Wal-Mart's Mexican operations are doing quite well, and so is its UK sales operation under the Wal-Mart brand Asda. The China market relationship with Trust-Mart is just getting underway, and Wal-Mart's partnership with India's Bharti has solid prospects for the near future.

Looking into 2008

So, is Wal-Mart set to have an explosive amount of opportunity this year in its various international markets? From looking at its impressive Q4 international performance, that seems like a foregone conclusion. Although it had a few large missteps a few years ago in two promising markets, that's behind the retailer now and international growth is no longer a punchline at corporate office parties I'd suspect.

For Wal-Mart, the track to growth in the future may be settling in for its overseas operations. There seems to be a Wal-Mart location on every street corner (as it were) here in the U.S., and the markets that Wal-Mart has not entered yet continue to fight a fierce battle to keep the retailer out of town.

Internationally, though, Wal-Mart is steaming ahead and is making great progress is Q4 numbers are any indication. And that's just what Wal-Mart placed a large bet on last year that is now showing some impressive results -- and will continue to do so.

Join me right here next week for another edition of The Wal-Mart Weekly. Until then, have a safe weekend.