The international business model for Walmart Inc. has been straightforward for much of the past 20 years, according to analysts and consultants.
The retail giant wanted to replicate its success in the United States overseas and Walmart planned to use its size, scale and retail expertise to build businesses in numerous markets.
Walmart got its foot in the door in China, acquired Asda in the United Kingdom and took steps to rapidly expand in Brazil. The company pushed into new markets including Germany and South Korea, while also riding a wave of growth closer to home in Canada and Mexico.
Neil Stern, senior partner at retail consulting firm McMillan-Doolittle, said the strategy was centered on revenue growth and "just getting big." But recent moves have followed a different path.
"They're now saying it's going to be market-by-market, market specific," Stern said. "The way to win across the world is not going to be a replication of the U.S. strategy."
The most recent example of the strategy shift came April 30 when Walmart announced plans to sell Asda to rival Sainsbury's, forming a joint venture as part of a deal valued at $10.1 billion.
Walmart will retain a 42 percent stake as part of a merger that officials describe as an opportunity to create a new force in the competitive U.K. market. But the move has been viewed as an acknowledgement the 600-store business in a low-growth market it acquired for $10.8 billion in 1999 no longer fits into Walmart's long-term plans.
Instead, Walmart has shifted its focus to strengthening its position in markets where there are growth opportunities such as India, where the company is reportedly close to finalizing a $15 billion deal to take as much as a 75 percent stake in the country's top e-commerce company. In some of those markets, the world's largest retailer has sought help in generating growth through international partnerships.
Ben Bienvenu, a retail analyst with Stephens Inc., said it's a significant move for the company as it reconfigures an international business that had not been the growth driver it once was for Walmart.
"This management team seems to be more open-minded towards outsourcing different capabilities and offerings and not necessarily doing everything in house," Bienvenu said. "And, to some extent, they're being a little bit more strategic and returns focused than some of their predecessors."
ASDA SALES
Walmart's acquisition of Asda some 20 years ago was a key indicator of its international aspirations.
In 1998, the year before the move, the company's international sales represented about 6 percent of the company's total net sales. The unit continued to grow rapidly through expansion over the next several years with its total net sales jumping to as high as 29 percent of Walmart's total sales in 2013.
But that share has slowly decreased since, falling to 23.8 percent of net sales in fiscal 2018 as the international business lagged and Walmart U.S. began to post larger net sales gains.
Walmart operates about 6,300 international stores across 27 countries, according to the company's latest data. It includes Asda stores with the merger still subject to regulatory approval in the United Kingdom.
While the international store count represents more than half of Walmart's 11,700 locations worldwide, the business accounted for one-quarter of the retailer's $500 billion in revenue in fiscal 2018.
"For many, many years they've just piled the capital into these international markets and all they've ever said is, 'We're here long term,'" said Brian Yarbrough, a retail analyst with Edward Jones. "I think one of the big complaints has always been the returns in their international markets have been half of what they are in the domestic markets, but they keep piling all this capital into these markets."
The company pulled out of Germany after struggling to make its stores profitable. The retailer, which had formed a partnership with Bharti Enterprises in India, scrapped plans to open retail outlets in 2013. The competitive grocery industry in the U.K. -- which includes discount grocers Aldi and Lidl -- took a toll on Asda's sales. There have been struggles in Brazil as well.
ONLINE BUSINESS
Jennifer Bartashus, a senior analyst with Bloomberg Intelligence, said it can be difficult to move into a new country, open stores and get people to understand a brand. Walmart has had instances where its presence didn't work -- such as the failed attempt in Germany -- or others in markets including China and India where local retailers have a sizable market share.
"The cost to go in by yourself and build stores and to try to take away market share from some of those entrenched players is incredibly difficult," Bartashus said. "Not to mention, just the way the world is changing. Online sales are more and more important and the need to go to actual physical stores is slowly diminishing. The strategy to build more stores just won't work going forward."
Bartashus said Walmart has realized a combination of stores and an online presence works well in a lot of its international markets. It's similar to the strategy playing out domestically, where Walmart's management team has said customers who shop online and in stores spend twice as much.
In 2016, Walmart took a step in efforts to catch up to Alibaba in China by selling its unprofitable e-commerce business -- Yihaodian -- to JD.com. Walmart -- which operates about 425 stores in the Chinese market -- acquired a 12 percent stake in JD.com and the two have since worked on a number of initiatives, including online grocery delivery.
Earlier this year, Walmart attempted to strengthen its Seiyu business in Japan by working with Rakuten Inc., the country's largest online retailer. As part of the arrangement, the partners are setting up an online grocery delivery service in Japan and will sell e-reader devices and e-books in the United States.
"These partnerships offer Walmart a way to go into countries with an established partner who already has the local knowledge and Walmart can bring to that partnership all of their incredible knowledge on how to run a big organization," Bartashus said. "How to improve supply chain. How to take costs out of a supply chain. How to find ways to deliver low prices to customers. That benefits both partners."
Walmart Chief Executive Officer Doug McMillon said earlier this year the retailer still had plenty of work to do with its portfolio, but the company would focus its attention on North America as well as China and India as it weighs opportunities for growth.
At the same time, Walmart has continued to cut its losses in some countries and shed assets that no longer fit into its long-term international plans.
In addition to the Asda move, Walmart's Mexico unit shed its Suburbia clothing chain in an $852 million deal in August 2016. The company also is in talks to sell a majority stake of its Brazil operations, according to multiple reports.
Laura Kennedy, vice president for retail sales and shopper practice with Kantar Consulting, said the Asda merger with Sainsbury's was a sign Walmart wants to keep its foot in the door in the U.K. But Walmart believed it was necessary to adopt a new approach to regain lost market share.
"They're finding the areas where they can succeed," Kennedy said. "Just being there, just kind of throwing your hat in the ring does not guarantee success. You have to work at it."
POTENTIAL INDIA DEAL
Additional international moves are expected. The most discussed is the potential deal that would give Walmart a majority stake in Flipkart, India's largest e-commerce company.
Late last week, Bloomberg reported that Flipkart's board had approved an agreement to sell about 75 percent of the company to a group led by Walmart for approximately $15 billion. The deal has not been finalized, but an agreement could help the retailer get a leg up on Amazon.com.
Flipkart controls 35.7 percent of the e-commerce market share in India, according to data from Euromonitor Passport. But Amazon -- which is at 27.7 percent -- has been gaining ground.
Walmart operates about 20 wholesale stores in the country and has plans to open more over the next few years, but has not had a large presence largely because of government regulations.
Bartashus said an agreement with Flipkart would give Walmart another strategic partner overseas and an opportunity to drive growth as the company works to revamp its international business.
"If Walmart is able to successfully conclude a deal with Flipkart, that gives them a local player with a local presence that is all about online growth. Which is exactly where Walmart is looking to grow," Bartashus said. "A successful conclusion would instantly give Walmart a lot of room in India to help [increase] sales even further, and help to stay ahead of Amazon as well."
SundayMonday Business on 05/06/2018