Retail giant Wal-Mart is focused on improving returns from international markets where it already has a presence, rather than entering new countries, according to Doug McMillon, CEO of the retailer's operations outside the US, as he met analysts in Canada last week.

"Our focus this year in particular has been on improving returns with our existing businesses," McMillon said in Toronto on Thursday (12 April). "We've kind of locked and loaded on: let's make sure we get China and Brazil right and drive growth and drive returns and get into the detail of our operations there to make sure that's what we're doing."

A key element of this plan is rolling out the Every Day Low Price (EDLP) model in China, as well as South Africa, Argentina, India and Chile, with success already being seen from this shift in Brazil.

McMillon admitted some stores in China "haven't been as strong as we want them to be", combined with some outlets being closed following an issue around pork mislabelling.

"A lot of issues have been identified in China over the last few months," said McMillon, emphasising that, although the business "isn't actually that bad", it is "nowhere near where it could be".

Speaking about the company's plans for China, McMillon said: "We're going to have to drive some change, including EDLP and being even better merchants. China is a great market. And there's nothing externally that concerns me, it's really all internal at this point in our ability to execute and simplify that business in China."

In Brazil, Wal-Mart has made a "lot of progress" with the conversion to EDLP. "Customers are responding, the ticket continues to go up," he said, although he admitted that, while he was encouraged by increasing traffic, more improvements need to be made. "We are not good in executing all the way through this process in Brazil," he said.

According to Janney Capital Markets analyst David Strasser, Brazil and China are the two most important emerging markets in terms of their impact on Wal-Mart's overall returns. He says that a 100 basis point improvement in ROIC (return on invested capital) in either country would improve Wal-Mart's overall ROIC by 20bps.

However, while Strasser acknowledges Wal-Mart has made progress in Brazil through the move to EDLP, he argues the retailer still has some work to do in China.

"Success in China remains elusive," Strasser says. "The company believes the impediments to success are internal in nature and not indicative of structural market difficulty. We believe some of the hardships are related to insufficient local management experience, as Wal-Mart has made many changes recently.

"A thorough understanding of local culture and business relationships is necessary for success in China; a lack of connected locals could leave Wal-Mart at a disadvantage. Once again, here Wal-Mart also seems to know many of the issues, but overcoming them remains a challenge."

Executive line-up
In February, Wal-Mart appointed Greg Foran, a former executive at Australia's largest retailer Woolworths Ltd as president and CEO of its unit in China. Foran's appointment has raised eyebrows, not least because of his apparent lack of experience of working in China.

Multinational operators often talk of tapping into local knowledge of emerging markets and, given the challenges Wal-Mart faces, it was surprising to some that the retail giant plumped for someone deemed to be an outsider.

And, today, it emerged that another senior executive has left Wal-Mart's Chinese operations. Chief merchandising officer Joe Zhou has stepped down from his role just six months after taking up the position. The news of another departure will only add to the uncertainty surrounding Wal-Mart's business in what is now the world's largest grocery market.

Entering new markets
For all the focus on development in current markets, McMillon did not rule out the possibility of entering new markets. "If there's a large market out there with a high growth rate and we feel like, for some reason, this is a time that we need to go or want to go, we'll still do some of those things.

"There are markets where we have a low amount of share, low scale, and we could benefit shareholders by having more scale. And we continue to operate in a way to identify and, when appropriate, take advantage of those opportunities. So M&A is important, but our focus right now is on delivering in the markets that we're in."

McMillon said Wal-Mart may look to acquire capabilities in e-commerce and mobile commerce, and is building a global e-commerce platform that will allow it to expand its efforts around the world.

"Wal-Mart is moving from just being a company that operates stores and a logistics company to even more of a customer-driven company that responds to how they want to shop.

"And that'll include a pure path to e-commerce transaction sometimes, it'll include giving them information and helping them get more informed about a purchase decision before they make it sometimes. What the customers want, we will deliver."

Russia-watching
Of all the markets that Wal-Mart has yet to enter, it is its thoughts on Russia that has kept industry watchers guessing in recent years. Speculation of an acquisition or an independent move into the country has swirled for years.

David Cheesewright, president and CEO of Wal-Mart's operations in Canada, the UK and Africa, was careful not to rule out entering Russia, despite Wal-Mart closing its development office there in December 2010.

"Russia remains on a tabletop exercise basis and attractive market in terms of size and opportunity," he told the analysts in Toronto. "But as you know, we closed our office there and don't have any immediate plans to enter the market. But I wouldn't rule it out. It's more of those markets that would be on our shortlist that we want to make sure we stay close to and understand."