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Why Walmart’s International Strategy Bodes Well for Growth

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May. 11 2018, Updated 8:02 a.m. ET

Walmart acquires a majority stake in Flipkart

Walmart (WMT) is reshaping its international strategy, which augurs well for long-term growth. As competition heats up in the domestic market, Walmart is looking eastward to accelerate growth. The company announced that it’s acquiring a majority stake (about 77%) in Flipkart, India’s leading e-commerce company, for $16 billion.

The deal is expected to pressure the operating margins, in turn, its EPS in fiscal 2019. However, in the long-run, Flipkart’s strong value proposition, high-growth fashion platforms including Myntra and Jabong, and market-leading position in key growth categories such as fashion and mobile are expected to accelerate Walmart’s top line growth. Also, it will solidify its competitive positioning against Amazon (AMZN), which has also pledged to invest a large sum to gain hold of India’s fast-growing e-commerce market.

Besides facing tough competition from Amazon and other deep discounters, rival Target Corporation (TGT) and Costco (COST) further create challenges.

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Target Corporation continues to invest in its digital business, matching services offered by Amazon and Walmart. Also, the company’s value offerings and focus on merchandising with exclusive brand launches are likely to drive traffic. Costco’s strong membership base and value offerings continue to pull traffic and drive industry-leading comps growth.

Walmart merges its UK unit with Sainsbury’s

Walmart recently announced that it’s merging Asda, its wholly owned UK subsidiary, with Sainsbury’s. Similar to the United States, Walmart’s UK business is facing stiff competition from deep discounters, including Aldi and Lidl, in a low-growth market.

Per the terms of the combination, Walmart will hold 42% of the new combined company and receive 2.975 billion pounds (or $4.1 billion) in cash.

Besides India and the United Kingdom, Walmart expanded its partnership with JD.com (JD) to offer grocery products and opened a high-tech supermarket in China. Also, the company expanded its operations in Japan by partnering Rakuten.

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