Wal-Mart has maintained a slow-growth approach in Argentina since it opened for business there in 1995 and it currently has just 11 supercenters for a market of 39 million. And Wal-Mart plans to maintain that cautious approach, given the state of an economy that's still reeling from a catastrophic meltdown.

"We made the decision a number of years ago to go into a holding pattern because the economy looked like it was going to tank and it did," said John Menzer, Wal-Mart International president and ceo. "And we made the right decision to hold."

Wal-Mart Argentina, headed up by Antonio Barbero. went into that holding pattern in 2000 and hasn't opened a new store in Argentina since then, which was a good move given the events that have unfolded the past few years.

Argentina, long struggling with political and economic instability, watched its economy begin to slump in 1999 and completely crater in 2002. That was the year the peso was devalued by 270% in a matter of months with double-digit inflation following close behind. Needless to say, consumer spending fell into a black hole as shoppers spent what little money they had on bare necessities.

Now, retailers who have been waiting for the disaster to run its course are beginning to move again, or at least think about it. But it could be awhile before Wal-Mart and other chains feel confident enough to begin any serious growth in a country where 51% of the population still lives below the poverty level, and the unemployment rate hovers around 15%.

Dutch retailer Royal Ahold was the biggest casualty of the economic collapse. It was one of the largest retailers in Argentina until a few months ago when it sold its 236-store Disco supermarket chain and left the country. Ahold also sold its assets in Brazil to Wal-Mart and other countries in the region to focus on more stable markets. But Ahold's loss was a big gain for Chilean retailer Cencusud, which closed a protracted deal last month to buy Ahold's 236 Disco stores for $315 million. The deal instantly made Cencusud the country's second-largest retailer and added the chain to its 13 Jumbo Hypermarkets, 24 Easy DIY discount stores and 12 shopping malls.

Other retailers are also making moves that display some degree of confidence in a turnaround. French retailer Casino, which operates 20 Price Leader discount stores in Argentina, said it plans to double its store count in 2005 by opening 20 new stores in and around the city of Buenos Aires.

But the country's main player is taking a more cautious approach. Carrefour, Argentina's largest retailer with more than 400 stores, said its expansion plans for 2005 hinge on Argentina's ability to "tackle the black market and wrap up the country's mammoth debt restructuring."

The country's third-largest retailer, the 100-store Coto supermarket chain, has put a hold on growth and hasn't discussed its plans for 2005. It operates nine hypermarkets and 91 supermarkets.

All this leaves Wal-Mart in an uncertain position as the country has been sending mixed signals on whether it's on the road to recovery--signals that are likely to keep Wal-Mart in its holding pattern for at least another year.

National debt is still the country's top problem. Argentina is faced with a $132 billion shortfall and has defaulted on its International Monetary Fund loan payments on a regular basis, which indicates its problems aren't going away anytime soon. The country did receive good news in November when China announced plans to invest up to $20 billion in Argentina over the next decade, primarily to build railways, ports and roadways to improve the country's ability to export.

TOP FIVE RETAILERS IN ARGENTINA BY MARKET SHARE

  Company              Corporate HQ     2003 sales     2002 sales

1 Carrefour            France              $1,696         $1,615
2 Coto                 Argentina             $817           $770
3 Ahold                Netherlands           $722           $694
4 Cencusud (1)         Chile                 $493           $474
5 La Anonina           Argentina             $348           $347

Sales are for Argentina only, in millions. When necessary, figures
converted to U.S. dollars based on average annual exchange rates
for 2003 and 2002.

(1) Does not reflect purchase of Ahold holdings in 2004

Source: Euromonitor International

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