This is the first part of a two-part article, read the second part here: “After the fall: Will Wal-Mart rise again in Brazil?”
Things are not looking good for Wal-Mart in Brazil. So far, the retailer closed 60 stores, mainly because of failing profits. According to its corporate website, before the recent closures Wal-Mart Brazil had 544 stores, 200 pharmacies, 50 restaurants and 10 gas stations in 18 states and the country’s capital, in addition to an electronics business.
To understand what happened, let me tell you a bit of its history in Brazil: Wal-Mart entered the country in 1995, and through the following ten years had growth its business at measured steps. When Brazil’s economic boom started in the early noughties, around 2004-05, the retailer started a spending spree with local supermarkets chains acquisitions and expansion through other parts of the country, like the then ‘underdeveloped’ Northeast. An over-optimistic sales forecast convinced executives to open more and more stores – they even feared that Wal-mart’s expansion was growing too slowly.
Even after all that, Walmart has struggled to challenge the dominance of more established supermarket chains, such as Companhia Brasileira de Distribuição (GPA SA) and Carrefour, which have deep roots in key cities like Rio de Janeiro and Sao Paulo.
In my opinion what really went wrong for Walmart was their lack of brand positioning: It wasn’t cheap enough for the poor, but there was no appeal for the middle class either – GPA and Carrefour already had focused their business strategy eyeing the, then ‘new middle class’.
“It wasn’t cheap enough for the poor, but there was no appeal for the middle class either”
On top of all that, Brazil is notoriously difficulty for business: the taxation system is overly complex and logistics is a serious problem, as I mentioned on one of my previous posts.
Wal-Mart’s fiasco was to focus too much on store expansion rather than the Brazilian consumer. Now that Brazil has already entered one of the biggest recessions in its history, if they want to keep their Brazilian business afloat, customer understanding will be key in this time of crisis.
For more, read the follow up article “After the fall: Will Wal-Mart rise again in Brazil?”