The Supply Side: Walmart selling international assets to focus on higher growth markets

It has been more than two decades since Walmart aggressively moved to grow its global retail footprint. But in the past two to three years, the Bentonville-based retail giant has sold assets in Brazil, Argentina, United Kingdom, Japan and Africa.

Walmart execs have said little about the company’s Massmart business across sub-Saharan Africa. Still, the retailer’s annual report released on March 22 indicates continued challenges within the business as civil unrest and massive supply chain disruptions negatively impacted sales in the back half of last year. The challenges resulted in negative operating margins and a cash drain on the business.

In January, Massmart said it planned to sell 14 Game (tech) stores in East and West Africa, and 15 more in South Africa are now amid divestiture. Last year, the Massmart business reported net losses of $2.7 billion from its discontinued business from 43 stores it closed because of civil unrest. That loss equaled $175.8 million U.S. dollars.

“Our sales performance has been challenged by external events. … It has not, however, derailed our turnaround momentum, the positive impact of which is becoming evident in our continuing operations performance,” Massmart president and CEO Mitch Slape said in the March annual report.

Massmart said it also awaits authority approval to sell its non-core food business to competitor Shoprite Holdings for $89 million. The pending sale includes Cambridge, Rhino, Massfresh and the wholesale cash and carry formats. It consists of 71 food stores, 43 liquor stores and a meat processing facility. The deal is expected to close by mid-year.

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

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 people resources, with e-commerce technological assistance from Walmart, to take full advantage of the market opportunities before us,” Slape said.

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

Walmart divested 80% of its holdings in Brazil in late 2018 to Advent International and took a non-cash net loss of approximately $4.5 billion as a discrete item in 2019. A significant portion of the net loss is due to recognizing cumulative foreign currency translation losses. The final loss could fluctuate based on currency exchange rate changes at the closing.

Competition and a demanding economic environment resulted in Brazil’s challenging market for Walmart. Reporters asked Walmart International CEO Judith McKenna in 2018 about the company’s plans for stagnant growth in countries like Japan and Brazil. She said there was some turnaround in Japan, and the company is pleased with the progress there. McKenna said that in late 2018 Walmart was looking to divest from other slow-growth markets.

In 2021, Walmart and its majority partner Advent sold more holdings in Brazil to Grupo BIG Brasil. Walmart ended up with a 5.6% stake in the Brazilian retail business and a deal to license Sam’s Club formats to be run by Carrefour in Brazil. The deal was valued at $1.26 billion.

Walmart has also quietly retreated from Argentina, Japan and the United Kingdom. In November 2020, Walmart Argentina was acquired by Grupo de Narváez, a corporation that runs retail stores in Argentina, Ecuador, and Uruguay. Walmart Argentina recorded a pre-tax non-cash loss in fiscal 2021 of $1 billion, primarily due to cumulative foreign currency translation losses, according to the retailer’s recent 10-K filing with the U.S. Securities and Exchange Commission.

According to Walmart chief financial officer Brett Biggs, who spoke to analysts about the international realignment during an investor day in October 2021, Walmart has not looked back, choosing to invest more in the growth markets of India and Mexico.

In the United Kingdom, Walmart completed the sale of its wholly-owned grocery chain Asda in February 2021 after years of stagnant growth and several management changes in that market. The $9.6 billion deal left Walmart with a minority share of the grocery business and a capital loss of $5.5 billion in fiscal 2021 that dinged earnings per share by 25 cents a share in fiscal 2022.

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

Scott Benedict, an executive at marketing agency Whytespyder/Ascential Digital in Rogers, said Asda was a talent pipeline for Walmart over the past two decades. McKenna was plucked from the Asda operation to help oversee the day-to-day of Walmart’s U.S. business 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 that as the retail landscape changes, it makes business sense for Walmart to invest more in technology and markets positioned for growth like China, Mexico and India. Benedict said Asda was an excellent asset for Walmart to own, and retaining a board seat and minority interest indicates that the retail giant still values that business.

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

Walmart said it continues to collaborate with Rakuten, and the companies still operate an online delivery service together. That is somewhat like Walmart’s partnership ownership model adopted with its $16 billion majority acquisition of Indian retail conglomerate Flipkart. Walmart said it valued the contributions of its minority partners who had institutional knowledge from deep within the foreign market.

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

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

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 Supply Side section of Talk Business & Politics focuses on the companies, 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.