The divestment of 85% of its stake in Seiyu in Japan is the most recent of several retrenchments globally for Walmart. We look at how this move aligns with its international strategy and what it means for the business going forward.
Last new market entry in 2011
With nine years having passed since Walmart’s last entry into a new market, its recent round of international divestments should come as no surprise. In 2011, the retailer closed on its 51% in South-African based Massmart. While there have been several international transactions since then, they have all been within existing markets. These have included new partnerships in China and Japan and the acquisition of Flipkart in India.
Recent divestment activity
The change in ownership in Japan, which will see Walmart retain a 15% stake in the business, follows on from several other recent deals. Earlier this month, it announced it would exit Argentina, where it operates 92 stores. In October, it confirmed the planned sale of its Asda business in the UK to EG Group, although it will retain an equity stake in the business. It 2018, it divested the majority of its operations in Brazil to private equity firm Advent International.
Building positions of strengths
The recent round of divestments align with Walmart’s international strategy, which has been reshaped since Judith McKenna took up the leadership of the division in 2018. This is centred on building strong local businesses, optimising the store base as a competitive advantage to deliver omnichannel success, prioritising resources and accessing growth. The latter of these is significant given where Walmart is currently prioritising its investments; China, India, Walmex (Mexico and Central America) and Canada. In these markets, Walmart sees the opportunity to remain a strong market player, a position which was not as clear in the markets it’s choosing to exit.
In terms of China, India, Walmex and Canada, future growth will be based on its omnichannel capabilities. In China, Mexico and Central America, it continues to see scope for additional physical stores, while in India and Canada, ecommerce will take the share of investment. However, the opportunity to build a strong ecommerce business unites these markets.
These latest divestments will inevitably raise questions about the future of its other international operations. Over recent years, Walmart has reiterated its openness to alternative ownership structures and operating models within its existing markets. Walmart operates over 360 stores in Chile, where it leads the market, with a range of different formats.
Through its stake in Massmart, it operates over 400 stores in 13 sub-Saharan countries, although most stores are in South Africa. This has been a challenging market for Walmart, impacted by the economic backdrop and changing format strategies over recent years. In terms of food retailing, it’s the fourth largest operator in the market. Entered for its longer-term potential, weak consumer demand and high inflation has made it a challenging and complex market. However, the prospect of serving a growing middle-class, ensures a level of attractiveness.
Walmart of the future
Looking forward, international growth will be driven by its operations in India, Mexico, China and Canada. Add in its core US business, and a much clearer picture of the Walmart of the future emerges. Reflecting the changes which have been made over recent years, Walmart will become a true omnichannel business, and potentially the first to build a global omnichannel business model at scale.
Investing to win
However, the business is also diversifying, building several new revenue streams such as membership, digital advertising, fulfillment services and financial services. Over time, these are expected to make a meaningful contribution to the top and bottom line. The recent divestments are a step towards this, as they will enable Walmart to better direct its resources and investments to the markets where it believes it can win and win big.
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