Wal-Mart Sees India, South Africa Markets As Long-term Projects

Access to 1.2 billion consumers nor the estimated $534 billion value of India’s retail market is enough to entice Wal-Mart to alter its wholesale-only strategy, according to Walmart International CEO David Cheesewright.

The City Wire asked Cheesewright on June 4 to explain the retailer’s plan for India as it is seldom mentioned in earnings calls and remains a small and somewhat stagnant market in Walmart’s international portfolio.

“India is important long-term because they do have so much potential. There is still a lot to sort out there around Foreign Direct Investment and so on,” Cheesewright said. “We are happy to be in cash-and-carry. We have 20 wholesale stores for what is still a very fragmented market.”

Walmart India Private Limited is a wholly owned subsidiary of Wal-Mart Stores Inc. Walmart India owns and operates 20 Best Price Modern Wholesale stores in eight states across India. The first store opened in Amritsar in 2009, according to the retailer’s website.

Wal-Mart had big plans in India just a few years ago, partnering with Bharti so it could open retail stores given India’s strict rules prohibiting foreign investment. Facing political pressure, the Bharti venture was dissolved in October 2013 and Wal-Mart vowed to go its own way.

E-COMMERCE FOCUS
Cheesewright told The City Wire that there are numerous challenges for foreign retailers seeking consumer-oriented retail in India.

“When they make changes we will adapt. For now we have more than enough to worry about without doing too much there,” Cheesewright said.

Walmart International announced plans in April 2014 to expand its wholesale business to 50 “Cash and Carry” stores over the next four years. At that same time, Walmart announced the launch of a business-to-business (B2B) e-commerce platform for members of its Best Price Modern Wholesale Stores.

The e-commerce site provides wholesale customers a convenient online shopping opportunity. This virtual store offers a similar assortment of products as the physical stores and includes special items. Walmart India has equipped 16 B2B online stores, and e-commerce remains the major driver of growth for Walmart’s cash and carry business in India and is an area where the company expects to succeed.

“This initiative is aimed at enhancing our members’ shopping experience by integrating physical and digital store presence. We at Walmart are continuously innovating to bring in member satisfaction and our B2B e-commerce platform is just one of several such initiatives. It represents an additional channel for us to serve our members better and help them save money as it comes with the added convenience of ordering online, door-step delivery within 24 hours and several payment solutions,” Krish Iyer, Walmart India President & CEO noted in a March 25 press release.

TREAD SOFTLY
Walmart has put the brakes on the 30 planned new cash-and-carry stores after the retailer revamped its capital spending allocations in 2015 to shift more funds toward e-commerce and wage and training enhancements for its U.S. hourly workers.

Clint Lazenby, a supplier development consultant in Bentonville, has experience managing sales in India in a former job. He said it makes sense to tread softly.

“Having managed India for some time, I would tell you India for retail is a double edge sword. The country is potentially a huge market for anyone who can succeed there; however, the normal capabilities required to succeed are significantly different from other emerging markets I have seen. This creates significant business risk on top of the normal currency (and) political risk you might be willing to accept on their own,” Lazenby said. “It would make sense to me that Walmart would continue to learn, to experiment and most importantly to gauge the direction/impact of the Modi administration preserving their ability to follow fast (and) maintain a right to win there.”

Alan Ellstrand, professor of graduate studies at the University of Arkansas, recently returned from a three-week study trip throughout India. He said up to 95% of traditional retail in most of the country is located in “hole in the wall shops,” “carts on the street” and most are small family ventures. He said there are some big names likes Tiffany & Co and Coach located in high-end shopping centers in the larger metro areas.

He was not surprised that the concept of big box retail has not taken root in India where there are still many who shop daily and don’t need the concept of stock-up trips because they have no way to carry the goods from store to home and very little refrigeration to keep perishables. Ellstrand said consumers are loyal to local family shops which has kept the retail market very fragmented.

BUILDING FOR THE FUTURE
Cheesewright said in 20 years he believes Walmart will be glad it stayed in India and worked to improve the supply chain network.

“I think there is a change happening in the younger Indian population who are breaking from traditions and are very aware of online retailers. There will be a better opportunity for Wal-Mart and other foreign retailers to win favor with Indian consumers in the coming years,” Ellstrand said.

He said there are other benefits to Walmart’s presence within India because it allows for the time to build out a reliable supply chain and cultivate efficient and reputable manufacturing partnerships.

“I do believe that Walmart is at the vanguard of people when it comes to sourcing. They appear to be setting the bar high. They have to know the public and media are always watching,” Ellstrand said.

At Wal-Mart Stores recent shareholder meeting in Fayetteville, Cheesewright said Walmart India is working with small women entrepreneurs in the country through the retailer’s Empowering Women program.

SOUTH AFRICA
Walmart acquired a majority stake in Massmart Holdings Ltd. in 2011. Massmart operates more than 350 stores in South Africa and 12 other sub-Saharan countries.

Walmart International’s joint venture with South-African-based retail conglomerate is also a market with future potential, but Cheesewright said growth in stores there, like India, will be slow and more deliberate over the next few years.

“South Africa is a bit like India. I think we will be glad we are there in 20 years time but for now we are not in any rush. It is super-complicated and it’s not without risks,” Cheesewright said.

The partnership with MassMart operates five big formats involving construction, wholesale, retail, consumer products, home furnishings, food and liquor. In some respects Cheesewright said MassMart’s size rivals that of a small country.

“The first two years we did very little there telling them to seek us out where and when they thought we could help. There has been some good leverage since we put all our systems in there,” Cheesewright told The City Wire.

He said the African merchant teams travel with the U.S. buyers scoping out new products like patio furniture which is complimentary given the buyers are in two different hemispheres.

“Our seasonal orders for the U.S. would spike, but now that we can consolidate orders from other countries they are now manufacturing for the Southern hemisphere and staying busy year round. This has really helped to bring costs down for everyone,” Cheesewright said.