Wal-Mart: Looking overseas for growth

NEW YORK (CNNMoney.com) -- As Wal-Mart shifts more investment away from its saturated home base, the world's largest retailer expects to open 80 percent of its new international stores in Canada, Mexico and China, Wal-Mart executives said Wednesday.

"We believe the future of Wal-Mart's success will come from this mix of mature and emerging markets," Mike Duke, CEO of Wal-Mart International, told analysts during day two of Wal-Mart's annual analyst and investor meeting in Rogers, Ark.

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"What's new for us is that either we will win in every market or exit the market," he said.

The meeting was monitored via Webcast in New York.

Wal-Mart's (Charts, Fortune 500) international operations account for 23 percent of its total annual sales of $348 billion, but analysts expect overseas markets to be an important catalyst to growth, especially with its U.S. sales slowing down.

The retailer currently operates about 6,000 stores worldwide, including more than 3,000 stores in 13 countries.

On Tuesday, the company announced it would invest between $3 billion and $3.6 billion in opening overseas stores over the next two years.

At the same time, Wal-Mart said it would cut new U.S. store investment significantly to roughly $5 billion over the next two years from its current level of between $6.7 and $7 billion.

Duke indicated that Wal-Mart was considering smaller international store formats instead of its typical big-box design.

"We're not just a big-box story anymore. We've found that many of our smaller stores have better sales and return on investment," Duke said.

Executives also provided an update on Wal-Mart's plans in Canada, Mexico, China, India and Japan.

In Canada, Wal-Mart currently is the third-largest retailer with 293 stores and total sales of $14 billion. The company expects to open 14 Wal-Mart supercenters in Canada by the end of the year.

In Mexico, Wal-Mart de Mexico operates 960 retail operations, including supercenters, neighborhood grocery stores and restaurants, with total sales of $18 billion.

Next month, Wal-Mart is set open its first bank in Mexico called Banco Wal-Mart.

'This is not a side business for us," Wan Ling Martello, chief financial officer of Wal-Mart International, said during the meeting. "Over 80 percent of Mexico's population is unbanked. So we are offering the same low-cost value proposition to our customers with banking as we do with groceries or any other of our product."

Duke called China and India as two of the biggest retailing opportunities for Wal-Mart.

In China, where Wal-Mart runs 190 stores, including through its acquisition of Trust-Mart, he said Wal-Mart's five-year growth plans were "very ambitious but realistic."

"We want to expand to more cities and double our return on investment," Duke said. Wal-Mart has had a shaky start in China where it competes with several European supermarket operators as well as a handful of Chinese supermarket chains that have been expanding there at a fast clip

However, Duke said Wal-Mart's sales at its China stores open at least a year, which is a key measure of retail performance known as same-store sales, have grown twice as fast this year as for its key rival, French supermarket chain Carrefour.

"In the third quarter, our comparable sales rose 20 percent in China compared to a 9.6 percent increase for Carrefour. So we are very pleased," Duke said.

In India, Wal-Mart entered into a joint-venture with Indian company Bharti Enterprises to provide back-end support and supply chain expertise to open hundreds of stores across the subcontinent.

Wal-Mart cannot enter the Indian market directly. This is because current regulations pertaining to foreign direct investment only allow "single-brand" retailers such as Nike or Gucci to own 51 percent of their business operations in India. This precludes market entry to global merchants like Wal-Mart that sell a variety of brands.

Duke said the first store is expected to open next spring. "India is a major market and we have to be there," he said.

Duke also reiterated Wal-Mart's commitment to Japan despite struggling to find success there. Earlier this week, Wal-Mart announced it would acquire the remaining stake in its Japanese subsidiary Seiyu, which reported a loss for the first nine months of this year.

"Japan is the second-largest retail market and we are committed to win there," said Wan Ling Martello.