In a bid to fend off competition at global level from the likes of Amazon.com Inc. (AMZN), the leading U.S. retailer Walmart Inc. (WMT) appears to be taking a new approach, investing in local companies, instead of operating the overseas stores itself. (See also, Food Wars: How Walmart Plans to Beat Amazon?)
While the U.S. retailer is known for its “hands-on approach” at home, it seems to be driving in a different gear while operating abroad. Consider the following recent developments:
The Arkansas-based retail giant recently spent $16 billion to purchase a controlling stake in the Indian e-commerce company Flipkart. (For more, see Walmart Buying 77% Stake in Flipkart for $16B.)
In April, it merged its UK-based grocery chain ASDA with larger rival Sainsbury’s. The combined entity, of which Walmart owns 42 percent, is expected to have annual sales exceeding $50 billion.
Which Walmart Overseas Ventures Failed?
While Walmart has had many success stories in its various overseas ventures, it suffered major setbacks in a few regions. A look at some of Walmart’s failures in overseas territories indicates that Walmart’s stiff approach led to problems.
The company exited the lucrative German retail market, then estimated to be worth $370 billion, after an unsuccessful 9-year long stint from 1997 to 2006. Multiple local reasons are said to be behind the failure – high local wages and management salaries, local labor laws, mandatory store closure times, no Sunday openings, and complete failure to match the significantly different cultural and behavioral values of German customers.
Around the same time, Walmart was forced to exit South Korea as it failed “to adjust to the tastes of South Korean consumers.” Surprisingly, the British retailer Tesco found unprecedented success in the Korean market through optimum localization, raising questions about Walmart’s approach.
In 2013, Walmart parted ways with its then Indian partner, Bharti Enterprises, as it failed to build a bigger presence through the 50-50 joint venture that was formed in 2007. The failure was attributed to the then-evolving rules on foreign investment, an internal bribery probe, and disagreements with Bharti on the joint approach.
Is Walmart Taking an Investor’s Approach?
Learning from the past failures, the company appears to be treading more cautiously in the overseas markets and is now taking a flexible approach by looking at the details instead of imposing their standard Walmart culture at global locations. Taking an investor’s approach makes a perfect sense on this path, allowing the local partner or brand operator to keep the business running.
Bryan Roberts, analyst with TCC Global, said, “They’re being a lot more careful to preserve local brand equity and local practices, rather than imposing the Walmart culture everywhere.”
“It’s a departure from the historic way Walmart thought about international markets,” said one person familiar with the company’s thinking. “Historically they said: ‘We have the secret sauce and we will sprinkle the holy water in every country.’ The current management approach is very different. It’s about deciding the best way to access a market, and in India that was Flipkart,” reports Financial Times.
The hints about the shift in strategy were also apparent from a recent statement by the company chief executive Doug McMillon, “You can’t run Walmart like it’s one monolithic thing,” and “We know from retail history that if retailers don’t change, they go away.”
With the backing of the Walton family which owns a majority 51 percent stake that makes Walmart a nearly private company, management can enjoy sufficient room and flexibility in making long-term bets instead of worrying about the short term turbulence through such decisions.
However, the company is facing stiff competition from Amazon at a global level. Despite Amazon’s diversified experiments that span initiatives in space exploration and tours, drones, and technology offerings, shareholders have maintained their trust in the company as it remained profitable despite large intermittent cash burns.
The $3 billion Jet.com buyout deal was an attempt to challenge Amazon on its home turf, but after the initial hype the hysteria has cooled down. E-commerce constitutes only 4 percent of Walmart’s annual sales of $500bn. Walmart now needs something significant at a global scale, and the investor’s approach at leading and populous markets may be the answer to the fend off the competition.
On Walmart’s new international approach, the Bernstein analysts told FT, “We see Walmart as a long-run survivor who will develop various partnerships to grow into an ever-larger monster, locked in an epic struggle for global retail dominance against Amazon and Alibaba Inc. (BABA). The outcome of battle is not particularly clear at this stage.”
The Bottom Line
If Walmart has suffered in a few overseas markets in recent times, it has also tasted success in many other nations including China, the United Kingdom, and various South America countries through a diversified approach. The nearly 50-year old company that operates across 28 nations with more than 60 brand names has deep pockets to try new approaches. Each market has its own dynamics, and such investments and approaches take time to show results. (See also, Top 5 Companies Owned By Walmart.)