Mexico & Nafta - October 2006 (ISSN 1741-444X)

Wal-Mart de México is the country's biggest retailer. It has also become politically controversial. Since the 2 July presidential election, supporters of the defeated candidate in the presidential election, Andrés Manuel Lopez Obrador, have picketed branches of the supermarket chain across the country. They want to draw attention to the company's role in the elections. López Obrador and his supporters claim that Wal-Mart's local shareholder, Manuel Arango, and the company itself, supported the winner, Felipe Calderón Hinjosa, from the righting Partido Acción Nacional.

Wal-Mart has 837 stores and restaurants in Mexico. This makes Mexico the company's most significant foreign operation. The nearest rivals are Britain (where it owns Asda and its 323 stores) and Brazil (where it has 294 stores). Wal-Mart de México accounts for about half Mexico's retail sales through companies. The informal sector and markets are also significant players in the retail market. 

In August Wal-Mart de México's total sales were up by 16% at M$15.65bn and its like-for-like sales were up by 5%. This is significantly faster than sales growth reported by members of Asociación Nacional de Tiendas de Autoservicio y Departamentales, which Wal-Mart left several years ago. What is more, Wal-Mart de México is still expanding fast. In 2005, it opened 95 new stores, the most new openings it has achieved since it arrived in Mexico. The previous peak was 70 in 1994. The company claims that it reinvested M$8.1bn in expanding its Mexican operations. This accounts for 4.5% of the total foreign direct investment in Mexico. 

Wal-Mart itself is huge: in the second quarter (ended July 31 2006) the company's total worldwide sales were US$84.5bn and its net income was US$2.98bn. What is significant is that Wal-Mart's international operations are providing the bulk of the sales growth: in the second quarter, these were up by 32% at US$14.1bn. Wal-Mart's 3,256 stores in the US saw their sales rise by just 7% and Sam's Club sales were up by 5%. Comparable sales, which excludes new store openings, were even more anaemic, up 1.7% in the US as a whole. In terms of net income, the international segment, of which the Mexican element represents around 70%, is far more important. In the second quarter, international's operating profits came to US$1.75bn, up 16% year-on-year. In 2005, Wal-Mart de México's net profits were up by 17% at M$9.47bn on net sales up 14% at M$164.4bn. 

In Mexico, Wal-Mart's big recent strategic move has been to apply for a banking licence. This is likely to mean that the company will start to sell more big ticket items to its customers. Currently, local analysts reckon, 50% of Wal-Mart de México's sales are food. If the company gets a licence its earnings are likely to receive a major boost because it will be able to charge hefty interest rates. Other Mexican retailers with banking and credit operations, such as Elektra, a white goods retailer, which has Banco Azteca and Comercial Mexicana, which has Prestacomer, charge between 50% and 60% interest a year. 

Wal-Mart de México's three key operations in Mexico are Bodega Aurrera, which accounts for 31% of the company's total sales; Sam's Club, which accounts for 28%, and Wal-Mart Supercenter which accounts for 27%. Aurrera sells food and household products at cheap prices; Sam's Club offers discounts on volume purchases of similar products, and Supercenters are hypermarkets selling food, clothes and bigger ticket items.