This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 30, 2018).
By Sarah Nassauer in New York, Luciana Magalhães in São Paulo and Newley Purnell in New Delhi
The world's biggest retailer has concluded it can't take on the
whole world by itself.
Walmart Inc. is in discussions to give up control over hundreds
of stores in the U.K. and Brazil, two big markets where it has
struggled for years, according to people familiar with the talks.
At the same time, it is preparing to pour billions of dollars into
an Indian e-commerce startup to crack a promising market that has
long eluded the U.S. giant.
After spending decades building stores around the globe and
taking on local players, Walmart is forming joint ventures in
competitive markets and focusing investments in areas executives
think will provide growth to a company with $500 billion in annual
sales. The strategy shift comes as Walmart works to fend off
Amazon.com Inc. and a growing crop of discount grocers in the U.S.
and abroad.
Walmart is near a deal to sell a majority stake in its U.K.
grocery chain Asda to rival J Sainsbury PLC, according to people
familiar with the situation. The agreement is expected to be
announced Monday and Walmart would retain around 40% of the merged
company, one of these people said.
Walmart is also in talks to sell a controlling stake in its
Brazilian operations to private-equity firm Advent International,
according to people familiar with those negotiations. Though a deal
isn't final, Advent could take an 80% stake in the Brazil business
as soon as next month, one of these people said.
At the same time, Walmart in advanced discussions to buy a
majority stake in Flipkart Group, a homegrown startup that has
become India's largest e-commerce company. The deal isn't yet
complete and could fall apart, said a person familiar with the
Flipkart discussions. Flipkart said it was valued at $11.6 billion
in a funding round last year.
The three deals, if they are reached, would dramatically reshape
the Bentonville, Ark. company, which has about 6,300 of its 12,000
stores outside the U.S. In recent years, the company's
international sales growth has lagged behind the U.S. market, which
still accounts for two-thirds of total revenue and most of
Walmart's profits. On Feb. 1, the company changed the executive in
charge of its international operations.
"There's more work to be done on the portfolio," Chief Executive
Doug McMillon said during a conference call to discuss earnings in
February. "We've set priorities, focused on our North American core
and key growth markets, including China and India."
Walmart shares have tumbled about 20% since they touched an
all-time high of $109.98 in late January. After cheering the
company's initial success at expanding online U.S. sales, investors
have grown concerned about the costs of its battle with Amazon and
signs that web growth eased in the latest quarter.
A Walmart merger with Sainsbury would create a U.K. food giant
with combined revenue of about GBP50 billion ($68.9 billion),
according to the latest available financial results. On Saturday
Sainsbury, which has a market value of $8.16 billion, confirmed the
talks.
Walmart operates about 600 Asda stores in the U.K., the
company's biggest overseas market by revenue. It acquired Asda in
1999 for about $10.8 billion -- its biggest ever acquisition -- as
part of Walmart's goal at the time to double its international
operations.
Walmart entered the Brazilian market in 1995, and is currently
the third-largest supermarket group in the country, with total
revenue of 28.2 billion Brazilian reais ($8.13 billion), according
to data gathered by the Brazilian Association of Supermarkets.
Although it has 465 stores in Brazil, Walmart has struggled to grow
sales in the country and two years ago said it would close about 60
money-losing stores.
After Mr. McMillon became Walmart's CEO in 2014, Walmart stopped
building hundreds of U.S. stores each year, instead spending to
grow online, buy e-commerce startups and improve existing stores.
In late 2016, Walmart paid $3.3 billion to buy startup Jet.com.
Internationally Mr. McMillon has become more willing to partner
with local powerhouses to grow more quickly and take on Amazon
outside the U.S.
In China, where Walmart has about 440 stores, the company in
2016 sold its e-commerce venture Yihaodian to JD.com Inc. in
exchange for a stake in the Chinese e-commerce company. It now
partners with the Chinese company on local grocery delivery,
warehousing and other ventures.
Walmart has about 330 stores in Japan. Earlier this year, it
formed a joint venture with Japan's largest online retailer,
Rakuten Inc., to provide online grocery deliveries and digital
books in the U.S.
Walmart executives say India is a key battleground. "India is a
market, over time, that I think, whether it's 10 years, 20 years,
30 years from now, we'll be glad we're in India, and I think
there's a lot of growth opportunities there," finance chief Brett
Biggs said last summer.
In India, Walmart has grown slowly for years with physical
stores blocked by tight regulations from selling products directly
to consumers. Walmart opened its first wholesale outlets in India
in 2009 amid hopes that it would eventually be allowed to open
consumer-facing stores. But it shelved those plans in 2013.
Instead it's opened 21 Best Price wholesale stores, with plans
to open 50 more. The member-only stores resemble U.S. warehouse
chains like Costco and Sam's Club, but are only open to licensed
businesses owners to comply with government regulations.
By 2016, Walmart was holding discussions with Flipkart about
investing in the startup, seeking to gain a better foothold in
Asia's third-largest economy. Just a small proportion of India's
1.3 billion people regularly shop online now, but the number is
growing as more people get access to the web for the first time.
Online retail in India was worth about $20 billion last year, but
should rise to $35 billion by 2019, according to Forrester.
Flipkart, which was started by two former Amazon employees in
2007, has already raised billions from investors including SoftBank
Group, Tencent Holdings, and Microsoft Corp. It sells everything
from sofas to shoes and smartphones.
In part, Walmart's interest in Flipkart is defensive. Amazon
founder Jeff Bezos has pledged to invest $5 billion in India, and
Amazon has made rapid gains against Flipkart since its 2013 launch
in India.
Ben Dummett in London contributed to this article
Write to Sarah Nassauer at sarah.nassauer@wsj.com, Luciana
Magalhães at Luciana.Magalhaes@wsj.com and Newley Purnell at
newley.purnell @wsj.com
(END) Dow Jones Newswires
April 30, 2018 02:47 ET (06:47 GMT)
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