Can Wal-Mart Get Any Bigger?

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The traffic is not all one way. ASDA's George brand of apparel is one of the most popular private-label lines in Britain, and Wal-Mart recently launched it in the U.S. "We're selling apparel anyway," says Claire Watts, Wal-Mart's fashion boss. "Would it kill us to be a little more up to date?" Designers from ASDA and from Wal-Mart headquarters now go on trend-spotting trips together, an exercise associated more with hip brands like Nike, and one that sounds perilously outside Wal-Mart's core competency. Watts insists that her group isn't trying to move Wal-Mart into haute couture. The focus is fashion basics at low prices.

When the team creates a new blouse, all the product specifications--colors, patterns, fabrics--are controlled by Watts' designers in Bentonville. Then Eaton's group tells the factories what and how much to make. No samples have to be made and sent back and forth across oceans because the company uses high-end computer color rendition and printing. Changes can be made quickly. The motive is speed as much as price. From the factories, garments can be sent to Newcastle, England, or New Castle, Del.--and therein lies the trap. This kind of centralization always makes sense in the beginning, when cost savings are easy and the staff is lean. But history shows that the buying organization eventually becomes bloated, as it did for Kmart, and tries to force merchandise through the system whether or not local managers and their customers want it.

Wal-Mart's expansion has gone well in Mexico, where it is the country's largest retailer. And the company just completed a deal to crack the Japanese market by acquiring 34% of Seiyu, a well-positioned but struggling retailer. But Wal-Mart has stumbled badly in some countries, particularly Germany. "We could write a training manual about our experiences in Germany," Scott says. "We really did more things wrong than right." There, Wal-Mart faces tough competition from well-established chains, especially among grocers. The German managers Wal-Mart brought on board through two mergers resisted American help. "We've been trying to get the Germans culturalized; we bring them to Bentonville," says John Menzer, head of the international division. But Bentonville also had to learn a few things about Berlin. German shoppers found Wal-Mart's door greeters appalling, and they regarded the ever helpful clerks as an intrusion on their private space.

From Wal-Mart's point of view, it's the Chinese who have turned out to be the best capitalists. At the store in Shenzhen, local managers hold Ping-Pong tourneys, stage fashion shows and have clerks hawk products like paper towels in front of a large display. And that's just on Tuesday. The store even has its own fight song ("My heart is filled with pride...I long to tell you how deep my love for Wal-Mart is...").

Wal-Mart is increasing this year, from 25 to 40, the number of stores in China. The company introduced the Walton Institute, a program to teach local managers the master's Three Basic Beliefs (respect for the individual, service to our customers, and to strive for excellence), the 10-Foot Rule (always greet a customer when she gets within 10 feet of you), the Sundown Rule (any employee or customer request must be addressed before sundown) and other cultural foundations.