Site map
0The virtual community for English-speaking expats and Russians
  Main page   Make it home   Expat card   Our partners   About the site   FAQ
Please log in:
To register  Forgotten your password?   
  Survival Guide   Calendars
  Phone Directory   Dining Out
  Employment   Going Out
  Real Estate   Children
   July 18
News Links
Business Calendar
Phone Directory
 Latest Articles
 Archived Articles
Analysis & Opinion
01.03.11 Walmart Fails Where Others Succeed
By Rosemary Griffin

Walmart closed its representative office in Moscow yesterday after failing to crack the Russian market. The decision to pull out came after Walmart missed out on deals to acquire two Russian retailers, Kopeika and Lenta, last year. But why did the world’s largest retailer struggle to make an impact in Russia, and have grocers looking to enter the Russian market today already missed the boat?

"I think Walmart overslept. With their decision-making processes and management from the United States (an eight hour time difference), they didn't have a chance,” a source close to Walmart's attempts to enter the Russian market told Russia Profile.

Kopeika was finally bought in December of 2010 by Russia’s largest grocery retailer X5, in a deal worth 51.5 billion rubles ($1.65 billion). A successful take-over of either Kopeika or Lenta would have given Walmart an entry point into the Russian market, with Kopeika seen as the favorite. Walmart’s decision to leave Russia came just a week after X5, of which Mikhail Fridman is a significant stakeholder and owner of Pyaterochka, Perekrestok and Karusel, secured the deal.

Speaking on December 13, 2010 – the day Walmart announced its plans to exit Russia – the CEO of Walmart International Doug McMillon cast the group’s decision to exit the Russian market as a matter of strategy. "Since we have decided to enter the market through acquisition, not green-field development, and since there is no clear acquisition partner in the near term, there is not a business reason to continue our Moscow representative office,” McMillon said. The CEO did not rule out further attempts to enter the Russian market in the future, however. "The Russian market is a compelling retail opportunity and we believe that Russian consumers could benefit from Walmart's value proposition. We will continue to pursue market entry opportunities."

Galina Maliborskaya, the director of the Retail Department at the Moscow office of commercial real estate firm Colliers International, said it is hard to say why Walmart pulled out without a full understanding of the company’s global strategy, but she did offer some theories. “Perhaps one reason could have been land prices,” Maliborskaya said. “Land here is very expensive, and maybe they counted on it getting significantly cheaper during the crisis. But the crisis was relatively short and during that time prices did not become very low.” Maliborskaya also pointed to the difficulties of finding a suitable acquisition target. “Walmart has very specific branding and image. It needs certain features, such as plenty of parking, and not all chains that are already operating in Russia have a similar concept.”

For some in the industry, Walmart failed to strike while the iron was hot. There had been rumors circling that the American company was looking for a way to enter the Russian market since 2002, but the representative office only opened in April of 2008. "They just weren't in a position to be competitive. Real, Auchan, OKEY, Globus and Metro had snapped everything up. What is more, they were probably already in Russia when it was still possible to be competitive, before the Germans and then the French entered the market," a source close to Walmart's attempts to enter the Russian market told Russia Profile. "In terms of smaller shops, Sedmoy Kontinent, Azbuka Vkusa and little stores like Kopieka, Spar and Perekrestok were well established. Walmart started looking at development too late."

Strategy changes also failed to turn the company’s fortunes around. "At the beginning of 2009 Walmart launched a tender to design two prototype shops: one a medium-sized hypermarket, similar to a Real store, and the other a large format hypermarket, similar to a large Auchan," the source said. But a year later the company had changed its requirements. "In August 2010 there was another tender, to design a prototype for a much smaller development, something like a local neighborhood store."

Walmart is not the only major international retailer to pull out of Russia in recent years after failing to establish a viable business in the country. In October 2009, Carrefour announced it was pulling out after opening just one shop in Moscow and another in the Southern city of Krasnodar. A Carrefour statement released to coincide with the pull-out reads similar to Walmart’s complaints: "Carrefour has decided to sell its activities in Russia and pull out of the market, given the absence of sufficient organic-growth prospects and acquisition opportunities in the short-and medium-term that would have allowed Carrefour to attain a position of leadership," the statement read.

Retreating when a suitable acquisition target is not available could be a wise strategy for discount retailers looking to enter Russia, however. In regard to the acquisition versus starting from scratch debate, Maliborskaya said that in the discount sector, buying an existing chain is the safest bet. “It’s the best way to get a large sales area quickly and sell a big enough volume of stock to keep margins down – essential in discount retail.”

That’s not to say that today’s lack of suitable acquisition targets will keep the likes of Carrefour and Walmart out of Russia for long, something about which Maliborskaya remains optimistic.

“The Russian market is very big, there are a lot of people here and the sector in which Walmart operates – discount retail – is severely underrepresented. There are only two international hypermarket chains, Auchan and Real, that are operating in this sector, so the market is certainly not saturated".
The source
Copyright © The Moscow Expat Site, 1999-2024Editor  Sales  Webmaster +7 (903) 722-38-02