Wal-Mart de Mexico Cuts Expansion Plans Jonathan J. Levin and Carlos Manuel Rodriguez - Bloomberg News
go to original June 21, 2012

Wal-Mart de Mexico SAB, the unit under investigation for bribing Mexican officials to get stores open faster, cut its expansion plan for this year.

Owing to a more deliberate process to open a store, Wal- Mart Stores Inc. (WMT) (WMT)’s Mexico subsidiary will open between 325 and 335 locations in Mexico and Central America this year, down 23 percent from its previous upper estimate of as many as 436, according to a statement to the Mexican stock exchange sent yesterday.

The new steps required to open a store set back development plans by 60 days to 90 days, Wal-Mart de Mexico said.

“It’s bad news” and the delays are likely to hurt the stock’s performance, said Raul Ochoa, an analyst at Interacciones Casa de Bolsa in Mexico City. “We’re talking about a whole quarter. That’s a lot of lost sales days.”

Ochoa said he’s reviewing his buy recommendation.

In April, the world’s largest retailer confirmed it had started a probe into its Mexican operations in response to allegations that executives bribed officials to fast-forward expansion. The U.S. Justice Department and the U.S. Securities and Exchange Commission are also investigating.

Officials at Wal-Mart have been sued by a group of New York pension funds for alleged mismanagement in failing to prevent bribery.

Pension Funds

Investors including the New York City Employees’ Retirement System, Police Pension Fund, Fire Department Pension Fund and Board of Education Retirement System contend that company officials were duty bound to control alleged “widespread corruption” and a subsequent cover-up at Wal-Mart de Mexico, according to a complaint filed on June 11 in Delaware Chancery Court.

Before the bribery probe, Wal-Mart de Mexico had been the star performer of the parent’s international operations. Last year, Walmex, as it is known, generated about 21 percent of Wal- Mart’s international sales growth.

Wal-Mart also has demonstrated some of its most effective retail innovations in Mexico. More than half of the Mexican stores are relatively small Bodegas Aurrera stores, which appeal to Mexican shoppers because they are low-priced and convenient places to get food and basic consumables. Their success prompted Wal-Mart to use them as the inspiration for its new, small- format locations in the U.S. and Latin America.

In the past decade, Wal-Mart de Mexico expanded its stores by an annual average of 37 percent, outpacing Mexico’s economic annual growth average of 1.3 percent for the same period by 29 times.

Mexico may grow between 3.5 percent and 4 percent this year, central bank Governor Agustin Carstens said yesterday.

Retail Concepts

In Mexico, Wal-Mart also successfully put several retail concepts on one patch of real estate. Configurations include a large discount store, Sam’s Club, Suburbia apparel store and a Vips restaurant all facing one parking lot.

Walmex, which is 69 percent owned by Bentonville, Arkansas- based Wal-Mart, fell (WMT) 0.8 percent to 36.43 pesos at yesterday’s close in Mexico City before the growth cut was announced. The shares have dropped 15 percent since the New York Times report.

The changes for real estate developments in Mexico seek to “improve documentation,” spokesman Antonio Ocaranza said in a telephone interview yesterday. He declined to comment on the bribery investigations.

To contact the reporters on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net; Carlos Manuel Rodriguez in Mexico City at carlosmr@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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