Wal-Mart (WMT) faces huge risks outside the US

Posted Feb 2nd 2009 4:07AM by Douglas McIntyre
Filed under: Wal-Mart (WMT), India, China, Target Corp. (TGT), Mexico

Wal-Mart (NYSE: WMT) wants to increase its expansion overseas. It is taking on huge risks by doing so. It has already been severely beaten up in Korea and Germany and is having trouble making money in Japan.

According to The Wall Street Journal, Wal-Mart's new CEO Mike Duke "is expected to continue expanding Wal-Mart into new foreign markets, especially in developing nations, while remodeling domestic stores to better position the company against rivals such as Target Corp (NYSE: TGT).

In Wal-Mart's December report on store sales, its international stores lagged US properties in revenue increases. Some of the firm's main markets like China and Mexico are probably facing slower sales as the recession hurts their economies.

Wal-Mart is up against two big hurdles outside the US. The first is that fast-growing markets like India and China may be hit harder than the US in the current downturn because they rely heavily on the export market which is dying. Consumer spending in these nations is likely to suffer. That makes them poor candidates for new stores.

A more portent enemy to Wal-Mart's expansion may be protectionism which tends to move up sharply in bad economic times. Wal-Mart may find itself shut out of some countries while facing big restrictions in others.

For the time being, the world's largest retailer may want to stay close to home.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Tags: inthenews, TGT, WMT