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Wal-Mart Exits Korean Market

May 23, 2006|From Bloomberg News

Wal-Mart Stores Inc. said Monday that it had agreed to sell its unprofitable chain of South Korean super-centers to Shinsegae Co. for 825 billion won (about $870 million).

Wal-Mart Vice Chairman Michael Duke said the company was shedding the 16 stores because "it became increasingly clear that in South Korea's current environment it would be difficult for us to reach the scale we desired." The unit has about $1 billion in sales, UBS analyst Neil Currie said in a report.

The world's largest retailer, based in Bentonville, Ark., joins Carrefour of France in selling businesses in South Korea after failing to win enough customers with warehouse-style stores.

Wal-Mart opened seven stores in the country in the last five years, the least of any overseas market, as it focused on expanding in countries such as Brazil and Mexico.

"It's clearly an issue of not being able to ramp up to a critical-mass size that allows them to compete," said Don Gher, chief investment officer at Coldstream Capital Management, with $950 million in assets, including Wal-Mart shares. "They have critical mass in Germany, but South Korea has been tougher for them to expand."

The purchase by Shinsegae would extend its lead in South Korea's $30-billion discount market, giving it a total of 102 stores and more clout in negotiating lower prices with suppliers.

Wal-Mart entered South Korea in 1998 and has 3.8% of the nation's discount-store market.

"It became clear that the bare-bones-style stores didn't appeal to the South Korean market," said Frank Badillo, director of global research at market research firm Retail Forward Inc.

The sale is "an indication that Wal-Mart may at long last be rationalizing its too-far-flung international operation," A.G. Edwards & Sons analyst Robert Buchanan wrote in a report. "Wal-Mart has no business in our view continuing to waste its time and resources barking up such tiny trees as South Korea." Buchanan rates the stock a "hold."

Wal-Mart's international division reported sales of $62.7 billion last year, about 20% of the company's total revenue. It was the company's fastest-growing unit by sales, with a gain of 11%.

The retailer posted a 9.9-billion-won loss last year in South Korea on 728.7 billion won in revenue.

Wal-Mart shares rose 3 cents to $47.35.

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