Wal-Mart vs. Carrefour: Global Retail Strategy Compared

Introduction

The forces of globalization and market liberalization have made it possible for organizations to spread their wings beyond territorial boundaries, allowing them to operate globally. In this dynamic and highly competitive environment, however, ultimate success depends on the ability of management teams to develop and implement strategies suited to customers, products and services, employees, the technologies employed, shareholders, and a multitude of other forces.

Two relevant examples of multinationals that triumphed in this context are offered by retail giants Wal-Mart and Carrefour. This paper examines their global operations while also providing background on each organization and the competition between them. The central problem identified is Wal-Mart's failures in the European market. Recommendations are offered on how Wal-Mart could address this issue, and the paper closes with concluding remarks.

Background on the Companies

Wal-Mart is the retail leader in the United States. The company was founded in 1962 in Rogers, Arkansas by Sam Walton, who placed a strong emphasis on offering consumers products at low prices. Much of his success was due to his focus on establishing fruitful relationships with staff members. Several points on Walton's agenda remain recurrent in the strategic approach forwarded by today's management team.

The motto of the organization is saving people's money so that they can live better. Wal-Mart operates in 13 countries and serves more than 176 million customers. The company continues to thrive despite ongoing financial challenges that have felled other economic agents — a testament to both the strength of its management team and the resilient nature of the retail industry, which generates demand regardless of the broader economic cycle. Wal-Mart ended fiscal year 2007 with revenues of $374.5 billion, setting a new record in the retail industry — an increase of 8.6 percentage points relative to fiscal year 2006 (Wal-Mart 2008 Annual Report).

Wal-Mart is also the largest employer in the United States and Mexico after their respective governments, and one of the largest employers in Canada. The corporation's investors have enjoyed remarkable returns, confirming its leading position in the Fortune 500. Its success has, however, attracted numerous critics, most notably democratic politicians seeking to win electorate by enforcing unions, union leaders, "left-wing pundits; a handful of right-wing pundits, concerned for localism; and arbiters of taste" (Nordlinger, 2004).

Throughout its existence, Wal-Mart has faced wide criticism for the policies it uses to maintain its lowest-price guarantee. The company has been accused of not covering the fringe benefits of employees, requiring them to work extra hours without additional pay, and offering among the lowest wages in the market. The average Wal-Mart associate is paid $7.50 per hour, out of which they must pay for their own medical coverage — a cost so high that only 2 out of 5 employees maintain it. Criticism has also been raised regarding the treatment of women, with allegations of discriminatory practices (Featherstone, 2002).

Wal-Mart currently operates 3,600 stores worldwide. Wholly owned operations are found in Argentina, Brazil, Canada, Puerto Rico, and England. The total number of worldwide employees is approximately 1.8 million, and the annual average income generated by the international divisions is estimated at $90 billion. In 2008, 20.1% of the multinational's revenues were generated by international divisions (Website of the Wal-Mart Stores, 2009), and the numbers for 2009 were expected to grow to at least 25%. In choosing their locations, Wal-Mart officials applied two criteria: aiding people in the region by helping them save money, and ensuring sufficient levels of profitability for the company (40-29 TvCom, 2009).

Carrefour S.A. was founded in 1957 in Levallois-Perret, France. The company sells consumer goods through an extensive network spread throughout the world. In 2007, the organization employed approximately 461,260 individuals and registered a net profit of nearly $2 billion and gross revenue of more than $82 billion. Fifty-four percent of total revenues are generated by stores outside France. Carrefour is the largest retailer in Europe and the second largest retailer worldwide, with stores operating in no fewer than 30 countries across Europe, Asia, and the Americas.

Within Europe, Carrefour operates 624 hypermarkets — 31 of which are franchises — and 2,459 supermarkets, of which 898 are franchises. In Asia, the organization runs 238 wholly owned hypermarkets. In the Americas, it operates 255 wholly owned hypermarkets and 141 wholly owned supermarkets. The total number of Carrefour stores worldwide reaches the remarkable figure of 14,991 (Carrefour 2007 Annual Report). The organization has been operating globally for nearly four decades (Incandela, McLaughlin, and Smith-Shi, 1999), and its expansion plans remain ongoing. In Egypt, for instance, the company intended to open 15 new stores over a 15-year period (Owen, 2001).

Just like Wal-Mart, Carrefour follows a consistently ascending trend, with sales increasing year over year. And, like its American competitor, the French retail giant has been subjected to intense criticism. One widely reported incident involved a three-year-old Indonesian boy who was killed when a metal rack fell on him in a Carrefour store; the company was accused of recklessness and of failing to meet with the family to settle the case (Detik News). Additional accusations revolved around false advertising campaigns and the operation of sweatshops (Peuples Solidaires, 2005).

Face-to-Face: Competitive Overview

For 2008, the Fortune 500 listed Wal-Mart as the number one company, noting that its efforts throughout the year had been focused on improving relationships with both customers and employees — suggesting the management team had taken criticism seriously and was working to improve. Carrefour was ranked number 33 on the same list. While Wal-Mart maintained its leading position relative to the previous year, Carrefour was downgraded two positions (CNN Money, 2009).

Each company competes against a wide range of retailers in both national and international contexts. The Hoover database notes that while Carrefour encounters its strongest competition from French-based Auchan, Casino Guichard, and E. Leclerc, Wal-Mart's top rival is in fact Carrefour, followed by U.S.-based Costco Wholesale and Target (Hoovers, 2009).

The retail industry in which both giants operate depends directly on their ability to implement low prices, generate large-volume sales, and develop strong distribution networks. Across the industry, 2008 ended with a 3% decrease in sales. A further 2% reduction was expected in 2009, with a rebound of 3% projected for 2010 and growth reaching 4% by 2013 (Hoovers, 2009).

Wal-Mart first entered Europe in 1997 through the secret purchase of 21 warehouses from German retailer Wertkauf GmbH. The following year it acquired an additional 74 warehouses from retailer Spar Handels. The threat this posed to European chains was not taken seriously until Wal-Mart's acquisition of British ASDA in 1999. At that point, Carrefour — then the fifth largest retailer in Europe — and its fierce rival Promodes, the seventh largest, decided to act. Carrefour acquired Promodes in a deal investigated and approved by the European Commission, and the enlarged Carrefour overtook German Metro to become the largest retail chain in Europe. Despite Wal-Mart's experience competing against strong rivals, they found Carrefour extraordinarily agile. One Wal-Mart retail executive who observed Carrefour's moves described them as "just relentless, the toughest competitor I've ever seen anywhere" (Holtream and Devinney, 2000).

Carrefour also recognized the power of the American competitor and responded with a series of strategic moves: remodelling store design, further reducing already-low prices, and relocating stores. The two companies' international expansion strategies diverged notably — Wal-Mart was more cautious while Carrefour was more aggressive. By 1998, international sales accounted for only 9% of Wal-Mart's total revenues, whereas Carrefour's international operations were already generating 44% of its total sales (Holtream and Devinney, 2000).

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