The Offer: Walmart Sells International Assets to Focus on Higher Growth Markets

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It’s been more than two decades since Walmart took aggressive steps to grow its global retail footprint. But over the past two or three years, the Bentonville-based retail giant has sold assets in Brazil, Argentina, the UK, Japan and Africa.

Walmart executives have said little about the company’s Massmart operations in sub-Saharan Africa. Still, the retailer’s annual report released on March 22 points to lingering challenges within the business as civil unrest and massive supply chain disruptions negatively impacted sales in the second half of the year. Last year. The challenges resulted in negative operating margins and loss of cash for the company.

In January, Massmart announced plans to sell 14 Game (tech) stores in East and West Africa, with another 15 in South Africa currently in the process of being sold. Last year, the Massmart business posted net losses of $2.7 billion from its discontinued operation of 43 stores it closed due to civil unrest. This loss was equivalent to US$175.8 million.

“Our commercial performance has been called into question by external events. … This has not, however, derailed our turnaround momentum, the positive impact of which is becoming evident on the performance of our ongoing operations,” Massmart Chairman and CEO Mitch Slape said in the annual report. March.

Massmart said it was also awaiting approval from authorities to sell its non-core food business to rival Shoprite Holdings for $89 million. The current sale includes Cambridge, Rhino, Massfresh and cash and takeaway wholesale formats. It consists of 71 food stores, 43 liquor stores, and a meat processing plant. The deal is expected to be completed by the middle of the year.

Slape noted in the annual report that the goal would be to expand e-commerce and focus on the remaining 408 stores it operates in 13 sub-Saharan countries under the Makro, Builders Warehouse, Game, Jumbo and Shield brands.

Massmart also acquired OneCart, a consumer goods marketplace and logistics platform that works with retailers to offer consumers a flexible home delivery service.

“We are rapidly deploying financial and human resources, with e-commerce technology assistance from Walmart, to take full advantage of the market opportunities available to us,” Slape said.

OTHER DISPOSALS
The international downsizing began in June 2018 when Walmart sold 80% of its retail business in Brazil after a decade of poor performance. Walmart CEO Doug McMillon said then that the retail giant was busy transitioning the portfolio into higher-growth markets, and it was working.

Walmart spun off 80% of its Brazil holdings at the end of 2018 to Advent International and recorded a non-cash net loss of approximately $4.5 billion as a separate item in 2019. A significant portion of the loss net is due to the recognition of cumulative exchange losses. . The terminal loss may fluctuate with changes in exchange rates at closing.

Competition and a demanding economic environment have created a difficult market in Brazil for Walmart. In 2018, reporters asked Walmart International CEO Judith McKenna about the company’s stagnant growth plans in countries like Japan and Brazil. She said there had been some turnaround in Japan and the company was happy with the progress there. McKenna said that at the end of 2018, Walmart was looking to divest itself of other slow-growing markets.

In 2021, Walmart and its majority partner Advent sold more stakes in Brazil to Grupo BIG Brasil. Walmart ended up with a 5.6% stake in Brazilian retail and an agreement to allow Sam’s Club formats to be managed by Carrefour in Brazil. The transaction was valued at $1.26 billion.

Walmart has also quietly pulled out of Argentina, Japan and the UK. In November 2020, Walmart Argentina was acquired by Grupo de Narváez, a company that operates retail stores in Argentina, Ecuador and Uruguay. Walmart Argentina posted a pretax non-cash loss in fiscal year 2021 of $1 billion, primarily due to cumulative foreign exchange losses, according to the retailer’s recent 10-K filing with the States Securities and Exchange Commission. -United.

According to Walmart Chief Financial Officer Brett Biggs, who spoke to analysts about the international realignment at an October 2021 Investor Day, Walmart hasn’t looked back, choosing to invest more in growing markets around the world. India and Mexico.

In the UK, Walmart completed the sale of its wholly-owned grocery chain Asda in February 2021 after years of stagnant growth and several leadership changes in that market. The $9.6 billion deal left Walmart with a minority stake in the grocery business and a $5.5 billion capital loss in fiscal 2021 that sent earnings plummeting from share of 25 cents per share in fiscal year 2022.

In October 2020, McKenna said Walmart would also retain a seat on the board and continue to be a strategic partner with majority partners Issa Brothers and TDR Capital.

Scott Benedict, an executive with marketing agency Whytespyder/Ascential Digital at Rogers, said Asda has been a talent pool for Walmart over the past two decades. McKenna was removed from the Asda operation to help oversee Walmart’s day-to-day U.S. operations under former Walmart U.S. CEO Greg Foran. She was then promoted to CEO of the international division in 2018 with the retirement of David Cheesewright, also a former Asda executive.

Benedict said as the retail landscape changes, it makes sense for Walmart to invest more in technology and markets positioned for growth like China, Mexico and India. Benedict said Asda was a great asset to Walmart, and retaining a seat on the board and a minority stake indicates the retail giant still values ​​the business.

STRATEGIC PARTNERSHIPS
Additionally, in 2020, Walmart sold a majority stake in its Japanese grocery business known as Seiyu to investment firm KKR and Rakuten, a digital commerce company. The $1.2 billion deal resulted in a pre-tax loss of $1.9 billion last year and an additional $200 million loss in fiscal 2022.

Walmart said it continues to work with Rakuten and the companies still operate an online delivery service together. It’s a bit like the partnership ownership model Walmart adopted with its $16 billion majority acquisition of Indian conglomerate Flipkart. Walmart said it values ​​contributions from its minority partners who have deep-rooted institutional knowledge of the overseas market.

The benefit of the portfolio’s strategic realignment allowing Walmart to focus on higher-growth markets “becomes more evident in revenue growth,” Biggs said in February. In fiscal 2022, Walmart International’s net sales totaled $101 billion, down 16.8% from the same period a year earlier. Walmart said the majority of the decline was related to divestitures.

Walmart executives said the company was showing “strength in India with Flipkart, Mexico, Canada and China, despite many markets being negatively impacted towards the end of the quarter by a resurgence of COVID.” , added Biggs.

In February, Canada, China, India and Mexico were highlighted positively in the fourth quarter earnings call. The smaller global footprint is paying off, according to Biggs.

Editor’s note: The side section offers of Talk Business & Politics focuses on the businesses, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak logistics.

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