Wal-Mart Shakes Brazil's Retailers

Arrival of US discounter brings low prices, friendlier service - worried shopkeepers

WHEN the first Wal-Mart opened in Brazil in November, so many customers lined up to get inside that the manager had to lock many of them out several times during the first week. They are still flocking to the discount retailer.

"I had to see for myself," says Douglas Magdesian, a civil servant donning a San Francisco 49er jersey and a Chicago Bulls cap as he pushes a full shopping cart into the parking lot of Wal-Mart's first Brazilian "supercenter" near Sao Paulo.

"It's a revolution," says former Sao Paulo Gov. Luiz Antonio Fluery. "Wal-Mart will change the Brazilian retail culture."

Already some rivals are crying foul, saying Wal-Mart's prices are unfairly low.

Sao Paulo merchants are lowering prices, offering free delivery service, raffling off cars, and allowing customers to pay with post-dated checks, and - for the first time - to use credit cards.

The "revolution" stems from Wal-Mart's business philosophy - a proven winner in the United States - of selling at high volume and lower profit; linking its stores and suppliers by computer; and introducing the concepts of one-stop shopping, courteous service, and palletized deliveries, which can take only 15 minutes.

Brazilian retailers typically sell at low volume and high profit; they lack computerization, offer spotty variety, employ often surly clerks, and rely on non-palletized deliveries taking two hours or so.

"Wal-Mart could wrench consumer-first philosophies out of notoriously truculent Brazilian retailers," says Richard Foster, editor of Brazil Watch, a Brasilia business newsletter.

Many here blame such truculence on decades of living with hyperinflation and government anti-inflation policies that alternately attracted and repelled buyers.

"We were used to living with day-to-day high inflation and could never figure out the real profit," says Emerson Kapaz, who owns a local toy store. "So we jacked up prices to earn a 30 to 40 percent profit."

"Now that Wal-Mart is here, there will be real competition," says Mr. Kapaz, who is also Sao Paulo state secretary for economic development.

For the first time in 20 years, inflation appears to have been stabilized. President Fernando Henrique Cardoso's 17-month-old economic plan has slashed monthly inflation from 50 percent to 1 percent, attracting foreign investors like Wal-Mart.

The largest US retailer, Wal-Mart has been expanding overseas so far mostly in Canada and Mexico. Now the Bentonville, Ark., company is moving into Brazil and Argentina and has plans for stores in China and Indonesia. It is also looking to enter Peru and Chile. In Brazil, Wal-Mart has a 60-40 partnership with Lojas Americanas, Brazil's No. 1 retail chain. Wal-Mart also opened its first Sam's Club, a membership warehouse, near Sao Paulo.

Industry experts say Wal-Mart is likely to build 50 stores in other Brazilian states over the next five years, in addition to five stores planned for Sao Paulo.

The Sao Paulo supercenter is a giant warehouse with 1,200 employees and 36 departments including electronics, pet food, auto parts, a bakery, laundry service, and one-hour film service. Throughout the store, customers are greeted with the familiar Wal-Mart slogans: "We Sell for Less" and "Everyday Low Prices."

On a recent Tuesday morning, the store was packed with shoppers lining up to buy a whole barbecued chicken at $2.69, an 11-pound bag of rice for $2.70, a 2-liter bottle of soda for $1.30, and a dozen freshly made American-style doughnuts at $4.98. "Brazilians have never seen so many stores under one roof," says store manager Roberto Mariano. "There is no doubt that we will soon be first in sales in Brazil." But not if Wal-Mart's main competitors have their way.

Just this month, Switzerland's Nestle accused Wal-Mart of selling below cost in violation of Brazil's antitrust laws. "It's dumping [selling under cost to break the competition] when you sell at prices 40 percent lower than the cost of the merchandise," Roland Meyes president of Nestle of Brazil told reporters.

"I don't see dumping here," answered Paulo Kus, Wal-Mart's Brazilian spokesman. "What I see is good business and happy customers."

Wal-Mart's main Brazilian rival, France's Carrefour, is responding by opening a "hypermarket" across the street from the supercenter with a Wal-Mart-like slogan on a banner out front: "Always, the lowest prices." A typical hypermarket is about 32,000 square feet and carries 20,000 products, versus the supercenter's 75,000 square feet and 60,000 products.

The French chain is obviously digging in for the battle for No. 1.

Carrefour recently announced that it would build nine new stores and install electronic stock-tracking systems.

After Wal-Mart opened its first Argentine store last August in Buenos Aires, it charged its main competitors with pressuring local suppliers not to sell to them. Although no names were mentioned, many believe Carrefour led the campaign.

As the giant chains scramble for the top position, smaller merchants say they will be the real losers.

"Even though the fight seems to be between Wal-Mart and Carrefour, the bullet is aimed at us small merchants," says Dorival Santos Rodrigues, manager of Supermarket Sorocaba, in the neighborhood of the Wal-Mart supercenter.

In the nearby suburb of Santo Andre, business has dropped by 70 percent since the Wal-Mart opening, according to a local retailers association.

If Brazilian mom-and-pop stores do go out of business, it would follow a pattern set in the US. An Iowa State University study showed that grocery, hardware, toy, and clothing stores suffered a significant loss in sales or were forced to close after a Wal-Mart opened in their area.

With such concerns in mind, 150 merchants here recently said they would boycott Wal-Mart's supercenter suppliers, 85 percent of which are local.

One force on small merchants' side: Making big purchases at a Wal-Mart or Carrefour is difficult without an automobile. And since only 1 in 11 Brazilians owns a car, the neighborhood store is still the easiest place to shop.

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