Watch Out Europe: Here Comes Wal Mart

It's Wal-Mart's biggest international move yet. When the giant Arkansas retailer announced a $10.7 billion deal for Britain's third-largest supermarket chain, Asda Group PLC, on June 14, its rivals couldn't help but take notice. Indeed, shares of British supermarket chain Tesco PLC plunged 6.7%, while J. Sainsbury PLC's fell 4.7%. "This is a nightmare for a lot of retailers in Europe," says Michael P. Godliman, director of Verdict Research, a London-based retail consultancy.

Already, analysts and store owners alike are predicting a wave of consolidation. The expansion of Wal-Mart Stores Inc.--with its cheap prices, buying clout, and efficient inventory and distribution systems--only adds to the competitive pressures facing retailers thanks to Europe's new single currency. If Wal-Mart's acquisition goes through, it will double the company's international sales to $25 billion--some 17% of annual revenues--in one swoop. And the Asda purchase will give Wal-Mart a second leg on which to build a Continentwide business, adding to the two German chains it acquired in the last two years.