Analysis: Cautious Wal-Mart missing out on Russia's retail boom

Thu Apr 5, 2012 8:49am EDT
 
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By Maria Kiselyova

MOSCOW (Reuters) - Retailer Wal-Mart Stores Inc (WMT.N: Quote) has let caution thwart its ambitions in Russia, and will find profits harder to come by if it delays getting a foothold in the vast market catering to 140 million people.

Fearful of getting hamstrung by Russia's complicated and time-consuming bureaucracy, the world number one retailer has been outmaneuvered by its European peers - Auchan AUCH.UL and Metro (MEOG.DE: Quote) have become the third and fourth biggest food retailers in the $300 billion-plus market.

It has missed out on the 30 percent-plus sales growth currently enjoyed by Russian retailers - now likely to slow as companies start to realise that further growth will depend on expansion into Russia's less wealthy provinces.

Most shoppers in Russia's cities have embraced supermarkets and malls since the fall of Communism over 20 years ago, overcoming suspicions about freshness and quality.

However, people in Russia's sprawling countryside or smaller towns may not be so easy to win over. Any transition there will be costly and difficult due to low incomes, and poor quality roads and warehouses. Intensified competition in major cities also means it will take longer for new stores to break even.

"Now there is more risk, but more return," said Alexei Krivoshapko, director at Prosperity Capital Management, one of the biggest investors in Russian stocks with $4 billion under management.

"Later there will be lower returns, more cash for entry, but less risk because it will be about buying a mature business."

Wal-Mart could also see competition from other foreign retailers if it tries to buy a local player in Russia, with accession to the World Trade Organization in 2012 making Russia's import-heavy retail sector even more appealing for international players by simplifying the import process.   Continued...