Wal-Mart, Gap throw Hail Mary to the East

The retail heavyweights hope to offset struggling domestic sales with overseas growth.

By TheStreet Staff May 13, 2011 1:35PM

By Jeanine Poggi, TheStreet

 

Two retail giants, struggling at home, hope to have better luck overseas.

 

Wal-Mart  (WMT) and Gap (GPS) both announced expansion plans to their international business in the last 24 hours; Wal-Mart with the acquisition of a minority stake in a Chinese e-commerce company, and Gap with the announcement that it is moving its brand into Serbia and the Ukraine.

 

The discount retailer purchased a stake in China's Yihaodian, which sells groceries, consumer electronics, clothing and other items. The Chinese company was launched in July 2008.

 

"By investing in Yihaodian, we're continuing to establish a presence in this important e-commerce market, and are moving forward on fulfilling our aspiration of being the leading global multichannel retailer," Eduardo Castro-Wright, vice chairman of Wal-Mart Stores and CEO of Walmart Global eCommerce and Global Sourcing, said in a statement.

Wal-Mart has been aggressively expanding its international business, which includes Brazil, Japan and Mexico, as well as other markets. These overseas operations are expected to make up about 26% of Wal-Mart's total sales in fiscal 2011.

 

But at home, Wal-Mart is grappling with seven consecutive quarters of sagging sales, and is poised to report another decline when it releases its first-quarter results next week. Domestic sales still account for about two-thirds of Wal-Mart's business.

 

Wal-Mart's declining U.S. sales are a factor of macro-economic concerns and the result of several internal gaffes. As part of its Project Impact initiative, Wal-Mart removed merchandise that it deemed unprofitable from its shelves, a move that received significant backlash from loyal shoppers. The company is restocking some of these items, but it has yet to reinvigorate shoppers.

 

It also appears that Wal-Mart lost its edge over pricing in the beginning of the year. While the retail behemoth has recently returned to its motto of everyday low prices, it certainly has put  a sour taste in consumers’ mouths.

 

Gap is facing some similar issues, as its sales have lagged that of competitors.

 

For the first quarter, the specialty retailer said it expects earnings to come in below estimates due to issues in its Japan operations following the earthquake and tsunami. Gap is looking for a profit of between 38 cents and 39 cents, while analysts are calling for 40 cents.

 

The company also warned of a significant decline in merchandise margins.

Gap said Friday morning that it will introduce its namesake brand in Serbia and Ukraine through new agreements with existing franchise partners. The stores are scheduled to open in 2011 in Belgrade and Kiev.

 

As part of its plan to grow its global market, Gap recently announced the consolidation of its international division into one unit.

 

But even overseas sales have been lackluster, with comparable sales internationally growing just 1% in 2010.

 

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