What is Walmart's global plan?

Walmart is revamping its global strategy.On Wednesday, Walmart announced it would pay around ...

Posted: May 9, 2018 11:43 AM
Updated: May 9, 2018 11:43 AM

Walmart is revamping its global strategy.

On Wednesday, Walmart announced it would pay around $16 billion for a majority stake in Flipkart, India's largest online retailer.

"India is a priority market for us," chief executive Doug McMillon said on a call with Wall Street analysts. "We're taking action to position the company for the future."

The move comes weeks after Walmart sold control of British supermarket chain Asda.

By pulling back in a saturated UK grocery environment and marshaling its resources in India, Walmart is adopting a more surgical approach than the "bull in a China shop" mentality it has taken in the past, said Paula Rosenblum, managing partner at Retail Systems Research.

"Walmart sees a long, protracted battle in the European market," Matt Sargent, a retail expert at consulting firm Magid, said. Targeting India is a "continuation of their desire to focus on the higher-growth segment."

McMillon told analysts on Wednesday that the company would prioritize investments that generate new sales and profit.

In the United States, that has meant shifting tactics to court wealthier Americans who shop online, expanding beyond its lower-income customer base in suburban and rural areas. Walmart has scooped up native digital brands like Bonobos, partnered with grocery delivery startups, and built out e-commerce capabilities with Jet.com.

Related: Walmart's stumbles with online growth

But Walmart faces an uphill climb online against Amazon at home, and it's searching for opportunities abroad.

The company first ventured outside the United States in 1991 to start a joint enterprise in Mexico. It's Walmart's largest overseas market today, with more than 2,300 stores. Walmart said last year that it expected pay $283 million to settle an ongoing federal investigation into allegations employees bribed Mexican officials.

Walmart operates more than 6,300 stores in 27 countries, including in Africa, Latin and Central America, Asia and Canada. About a quarter of its $500 billion in sales last year came from outside the United States.

But international sales have dropped 12% over the past five years. Walmart tapped a new CEO to lead its international division at the beginning of the year.

Successful international expansions have proven elusive for big box retailers that rely on economies of scale to sell at low prices. Target, Sears and Best Buy all failed to crack Canada.

"The middle class is wonderfully unique nation by nation. Retail as a whole has not been an internationally scalable business," said Scott Galloway, a professor at NYU's Stern School of Business.

Walmart attempted to muscle into Germany and South Korea, but exited both countries around a decade ago. It is now weighing stepping back in Brazil, the Wall Street Journal reported. Walmart has closed dozens of stores in Brazil in recent years.

Since acquiring Asda in the UK in 1999, Walmart struggled to compete against British rivals as industry leaders consolidated. More recently, Walmart faced steep competition from German discount chains Aldi and Lidl undercutting prices and online grocers' rise.

Related: Germany's Aldi takes on Amazon in food delivery fight

"Grocery retail has always been an intense battleground and nowhere is this truer than in the United Kingdom," Neil Saunders, managing director of research firm GlobalData Retail, said in an email.

The company is attempting to buck the trend in India, the latest battleground against Amazon.

"Everybody is hoping that India is the next China," Galloway said.

With more than 400 stores in China and a partnership with online site JD.com, Walmart is "well-penetrated" in China.

Walmart and Amazon are fighting over India's online market share, which Walmart says is growing at four times faster than retail.

Sales online could be worth $200 billion by 2026, Morgan Stanley said. Jeff Bezos has said there is "huge potential" in India and Amazon has pledged $5 billion there.

Related: Amazon made Prime indispensable - here's how

Amazon has built a big lead over its rival to become the second largest online player in India. It controls about 30% of the online market, Morgan Stanley estimates.

Walmart is adapting a joint venture strategy for India. "They're a homegrown winner," McMillon said of Flipkart. The partnership gives Walmart a powerful presence in the region overnight to catch up to Amazon.

In India, Walmart has an "opportunity to do what they've always been good at, which is bringing commodities at a reasonable price to the mass market," Rosenblum said.

-CNNMoney's Rishi Iyengar contributed to this story.

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