Walmart’s decision to scale back its stake in Asda – by selling a chunk of its shareholding to Sainsbury’s – is representative of a wider change in the US giant’s strategy.
The UK is not the only market in which the global retail behemoth is dialling down its presence. Late last week, stories emerged in the Brazilian press that the US titan was looking to offload 80% of its business in the country to private equity firm Advent International.
Brazil, much like the UK, has been a problematic market for the retailer. It entered the South American country back in 1995, but gaining traction has been a struggle since. An extended recession, from which the country is only now emerging, has not helped matters.
Walmart operates 65 banners in 28 countries globally, making it the world’s largest retailer by far. However, it has not enjoyed an easy ride in many of those markets.
Retail worldwide is changing. Ecommerce is transforming how we shop and Walmart is acutely conscious of the need to evolve. As Retail Week recently explored, it now sees Amazon as its number one competitor.
The battle between the two is well underway in the US – and recent results have not proved kind to Walmart. For all the billions poured into digital transformation, Amazon remains easily ahead.
Despite this, Walmart is convinced it can make up the ground on its digital rival. But the scale of the task is massive – one of that would daunt many an operator without Walmart’s scale.
To take on Amazon, it needs focus, funding and top talent. What is not required is spending valuable time and resources overseeing operations abroad. It makes strategic sense, in Walmart’s eyes, to forge strategic alliances in selected markets and concentrate on future growth.
That new stance is indicative of how shifts in power across global retail have driven Walmart to view India, Mexico and China as its target markets of tomorrow.
Mexico is rapidly overtaking the UK as Walmart’s most valuable international market. The country is beginning to embrace digital retail, with Amazon present there since 2015. As Mexico’s leading operator, Walmart will feel compelled to defend its turf and leverage its physical estate to combat the pureplay threat.
In China, Walmart has partnered with etailer JD.com to help run its big-box stores and manage its online-to-offline (O2O) grocery operation. It recently opened its first-ever O2O supermarket in the country, a format very similar to the Hema concepts by Alibaba.
It is India, however, that appears to be the real prize. Walmart has long been determined to succeed on the sub-continent, but complex regulation around foreign ownership has limited its presence to-date to a chain of cash-and-carries called BestPrice Modern Wholesale.
But that is set to change, dramatically.
For some months now, Walmart has been entwined in an intense courtship of India’s leading ecommerce player, Flipkart.com. The platform has been battling Amazon’s Indian business for supremacy in a market forecast to be worth $200bn by 2026 – compared to about $50bn this year.
Faced with the prospect of Amazon gobbling up that growth, Walmart is doggedly pursuing its takeover target, with a sale price in the region of $12bn being mooted. Sources suggest a deal may be struck later this month.
Whether or not it completes that multi-billion dollar swoop, there is no doubting that Walmart’s new digital focus is having ramifications way beyond the US.
It is now centring its international ambitions on tomorrow’s growth markets – the future of which, Walmart believes, is digital.
At the same time, the retail titan refuses to neglect its existing operations and is partnering with various businesses to help it drive international growth. The 42% stake it will retain in the proposed Sainsbury’s-Asda combinaton indicates that Walmart views the UK as a revenue driver for some years yet.
And in Sainsbury’s, it has found a partner it can trust.
Walmart believes Britain’s second-largest grocer shares its multichannel ambitions – and we expect to see many of its own digital innovations find their way across the pond in the coming years.
Tesco et al beware.
Analysis: Why Sainsbury’s and Asda are joining forces
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Analysis: Why Walmart is scaling back its stake in Asda