Wal-Mart de Mexico to Boost Investment 19% in 2007

Wal-Mart de Mexico SA, Latin America's biggest retailer, plans to boost investment this year by 19 percent to open stores and enter banking, Chief Executive Officer Eduardo Solorzano said.

Solorzano said Walmex will spend 10.8 billion pesos ($986 million) to open 125 stores and 10 to 12 bank branches, expanding capacity by 12 percent. Walmex invested 9.08 billion pesos in 2006 and added 120 stores.

The bank will support sales at Walmex stores and will mainly target low-income consumers who aren't served by traditional banks, he said. About 80 percent of Mexicans don't have bank accounts, he said.

``The bank will help us leverage the retail business,'' Solorzano said today during a news conference in Mexico City, where Walmex is based.

Solorzano, 49, is entering the banking market to boost sales and earnings growth. Walmex was granted a full-service banking license in December, beating its U.S. parent, whose application was put on hold for a year by regulators on Jan. 31. Walmex's bank will start operations in the second half and will open 40 to 60 branches in 2008, Solorzano said.

The company plans to set up branches at all of its stores, excluding restaurants, and will initially offer savings accounts and small loans to individuals and companies, Solorzano has said.

Small Accounts

Walmex chief financial officer Rafael Matute said the bank will focus on a large number of small accounts. Matute declined to provide information on banking products Walmex will offer or the layout of the bank's branches.

Walmex had 576 stores and 319 restaurants as of Dec. 31. The company plans to hire 20,000 workers in 2007, up from 17,500 in 2006.

Walmex's shares trading in Mexico City rose 99 centavos, or 2.1 percent, to 48.67 pesos.

By running the bank out of its stores, Walmex probably will have the lowest cost within the banking industry and will be able to tap into lower-income consumers who aren't served by traditional lenders, Robert Ford, a New York-based Merrill Lynch & Co. analyst, said in a Jan. 5 report. He estimates the bank may net $400 million in five years of operation.

Solorzano said Walmex has hired 70 people to work at the bank, and that 20 percent of the bank's staff comes from its retail operations.

Gaining Share

Walmex has been gaining market share on competitors by keeping its prices low, Solorzano said, helping the company boost its return on capital employed to 30 percent in 2006 from 18 percent in 2001. Sales at Walmex stores open at least a year rose 5.9 percent in 2006, while competing chains and stores had increases of 1.3 percent, according to the National Association of Supermarket and Department Stores.

Walmex, which doesn't belong to the trade group, said last week same-store sales grew 5.4 percent in January. All percentage increases for Walmex and competitors are adjusted for inflation. The company is two-thirds owned by Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT)

Last year, Walmex's prices were 2.1 percentage points less than the Mexican inflation rate of 4.05 percent, which resulted in a 3.8 percent gain in the number of paying customers and higher average purchases of 2.1 percent, Scot Rank, vice president of operations, said today.

The company plans to expand more into smaller cities and has been designing smaller versions of its stores in the past three years to attack the small-town market. Walmex has identified 371 cities for expansion and doesn't have a store in 232 of those.

``We're ready to capture the opportunities that we have in small cities,'' Rank said.

To contact the reporter on this story: Adriana Arai in Mexico City aarai1@bloomberg.net; Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Michael Nol at mnol@bloomberg.net

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