Wal-Mart Stores, Inc. (NYSE:WMT), already the world's largest retailer, is launching an aggressive plan to open up at least 90 stores in Sub-Sahara Africa over the next three years. Will these efforts succeed? Walmart has enjoyed past success in entering emerging markets such as China. On the other hand, Walmart has failed miserably when entering some markets, such as Germany. So now with Walmart looking to enter Africa, investors must ask, will this be another success, or another failure?
Wal-Mart entering hot growth markets
Wal-Mart Stores, Inc. (NYSE:WMT) is looking to enter hot growth markets, such as Nigeria and Angola. Both countries have been enjoying an oil boom, which has supported strong economic growth over the last few years. The aggressive expansion plan follows Walmart's 2.4 billion dollar acquisition of MassMart, a major big box retailer in South Africa. Given Walmart's track record in other emerging nations, such as Mexico and China, investors have good reason to feel optimistic.
Still, Wal-Mart Stores, Inc. (NYSE:WMT) has failed in some expansion efforts, largely due to misinterpreting local cultures. Arguably, Walmart's largest past failure was its attempt to gain a foothold in Germany. The company was plagued by cultural misunderstandings. For example, the company enforced policies that cashiers should smile at customers, but customers misinterpreted this as flirting. And when the company placed greeters at the front entrances, a common practice in the United States, German customers felt harassed. In 2006 Wal-Mart admitted failure and sold off its German assets at a 1 billion dollar loss.
Wal-Mart's approach in Africa is unknown
How Wal-Mart Stores, Inc. (NYSE:WMT) will approach the unique cultural circumstances and preferences in Africa remains unknown. In hindsight, the German failure was largely blamed on a lack of local leadership, and when local leaders were found, they were not empowered to adapt Walmart's operations to local conditions. Since this failure, Wal-Mart has shown more willingness to adapt to local circumstances.
Wal-Mart Stores, Inc. (NYSE:WMT) stands a good chance of finding success as it will be one of the first true big box retailers in the region. Wal-Mart's strategy in Africa will most likely differ from its U.S. strategy of being the lowest cost retailer. Instead of targeting lower end consumers in Africa, who will lack the buying power to support the chain, the company will most likely target Africa's emerging middle and upper classes. Wal=Mart has already found similar success with this strategy in China, Mexico, and elsewhere.
Emerging middle class in Africa
While Africa is known world-wide for its rampant poverty, recent years of strong economic growth have led to an emerging middle class. According to Deloitte, Africa's middle class has tripled over the next 30 years. Many analysts believe this expansion will continue. Indeed, the IMF predicts that by 2018 the world's fastest growing markets and economies will be found in Africa. Past predictions in regards to Africa, however, have fallen short, however, so many investors remain weary.
Either way, Wal-Mart Stores, Inc. (NYSE:WMT) has the money, capacity, and reputation necessary to invest for the long haul. If Africa's economy continues to grow, and Wal-Mart is able to avoid cultural missteps that have plagued it in the past, the company could be able to position itself as one of Africa's leading retailers in the years to come. With growth potential in North America all but fully tapped, this could prove to be the key to the company's continued expansion.