Tomorrow's Wal-Marts?
A fresh crop of burgeoning retailers is winning shoppers and turning heads, according to a new study
By Matthew Boyle, FORTUNE writer

NEW YORK (FORTUNE) - If you want to get a glimpse of the future of retail, skip the trip to Wal-Mart, buy yourself a ticket to Beijing, and check out Wu Mart instead.

Wu Mart? It's only been in business since 1994, and its $500 million in sales pale in comparison to Wal-Mart's (Research) $316 billion. But the fast-growing Chinese retailer was among ten up-and-coming global firms recently cited as "stores to watch" by UK-based food and grocery research outfit IGD.

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IGD's analysts visited over 50 retailers in two dozen countries, searching for chains that "had an impact beyond their scale," according to senior business analyst Jonathan Gunz, author of the study. Savvy merchandising, aggressive expansion strategies, and unique corporate cultures, among other factors, distinguished these retailers from the pack.

Conspicuously absent from the list were retail behemoths like Wal-Mart, Target (Research), Costco (Research), Britain's Tesco and France's Carrefour. "You don't have to be big to be successful," says Gunz.

Topping the list was Hong Kong-based AS Watson, the world's largest health and beauty purveyor with sales of $11.4 billion from over 7,000 stores in 36 countries. Of those 36 markets, 17 are emerging geographies like Romania and Russia, whose growing ranks of middle class shoppers are eager to purchase cosmetics and hair care products, Gunz notes. The company hopes to have 10,000 stores by 2008, with a possible entry in the US coming down the road.

While most of the stores on IGD's 2005 list operated in the US and Europe, this year's top ten included companies from Thailand (Central Retail Corporation, No. 2), Russia (Perekriostok, No. 6), China (Wu Mart, No. 10) and India. "These are markets with great potential," says Gunz.

Few markets have as much potential as India. At $250 billion, India's retail sector is the eighth largest in the world, and it should nearly double in size by 2010. But well over 95 percent of it is currently comprised of small mom-and-pop stores. That's bound to change, but foreign retailers like Wal-Mart are still not allowed to open up shop inside India, leaving the door open for home-grown companies like Pantaloon, a 72-store chain based in Mumbai.

Over the past five years, Pantaloon has shrewdly expanded from its department store roots to launch a big-box store format (dubbed "Big Bazaar") as well as supermarkets. The latter, dubbed "Food Bazaar," features live kitchens where chefs prepare the fresh produce that customers have just plucked off the shelves. It also has a home delivery service.

"The Indian market is enormous, the landscape is poorly served, and the middle class is expanding at a prodigious rate," says industry consultant Don Delzell. "Pantaloon's short-term prospects are outstanding."

Also making the cut were three American companies - privately-held Wegmans (No. 8), Whole Foods (Research) (No. 9), and, surprisingly, eBay (Research), the $4.5 billion online bazaar, which turned up in the fourth slot thanks to its legions of users and the profound impact it has on global shopping patterns.

Wegmans stands out for its unmatched customer service. (For more on the company, see "The Wegmans Way.") Whole Foods, meanwhile, was the only store to make the list two years in a row, thanks in part to the growing popularity of natural and organic products as well as its appealing selection of fresh food.

Fresh food is also a draw for Wu Mart, where shoppers can pluck a live fish out of a tank to have for dinner. The company also tailors its stores to suit local tastes, which mass merchants like Wal-Mart traditionally don't bother with. Such an approach can be costly: For example, the retail giant's recent retreat from South Korea was due largely to misreading the desires of consumers there. It sounds like the folks in Bentonville could stand to learn a thing or two from Wu Mart. Top of page

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