Walmart (WMT) discusses opportunities in large overseas markets
As mentioned in earlier parts of this series, Walmart’s management provided an update to the investor community on June 5. At the briefing, the company discussed its international business, which is a faster growth area than its more mature US operations.
Overseas revenue represented over 28% of sales in fiscal 2015. The company is bullish about its overseas growth prospects. International operations have shown positive comps (comparable same-store sales) for four straight quarters.
Last year, the retailer added 183 new stores overseas, representing 9.4 million square feet of retail space. To give a sense of scale, that’s ~10% of the total square footage owned by Costco (COST) and ~6% of Kroger’s (KR) square footage.
Walmart is focusing on its Chinese, Mexican, and Brazilian businesses in particular. In China and Brazil, it has been rightsizing its store footprint, closing unproductive stores and opening others in more profitable locations. There have also been management changes.
Walmart’s share of China’s grocery market is estimated to be 4.8%.[1. 12 weeks ending March 20, 2015, Kantar World Panel] It’s been losing share lately to local chains such as Sun Art and Vanguard. In 1Q16, Walmart reported positive comps in China, a first in several quarters. Walmart is also stepping up e-commerce investments in Yihaodian, its e-commerce business in China. Web traffic on Yihaodian rose 40% year-over-year in 4Q15.
Alibaba (BABA), a major rival, is also stepping up its logistical infrastructure in China. It has deals with Walmart competitors Costco (COST) and Macy’s (M) to sell their products on its Tmall website. As well, Alibaba may introduce next-day shipping to several Chinese cities soon, according to a report in the Wall Street Journal.
And according to a report in Bloomberg, Alibaba (BABA) founder, Jack Ma, is currently on a US tour to strike distribution deals with American companies to make their products available in China. This could strengthen the headwinds facing Walmart’s business in China.
Organized overseas retailers are losing business in China. In part, this is due to a lack of brick-and-mortar stores to adequately service the vast Chinese market. Walmart itself has closed some stores in China and opened others in more compelling locations. The ability to localize is vital in the hypermarket business, especially for global chains like Walmart and Carrefour.
Walmart, Costco, and Macy’s together constitute 1.1% of the portfolio holdings in the Vanguard 500 Index Fund (VOO).
In the next article, we’ll look at Walmart’s international opportunities and outlook.