Investors Nervous as Walmart Dabbles in New Markets | Koeppel Direct

Investors Nervous as Walmart Dabbles in New Markets

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Walmart is determined to outpace Amazon sooner, rather than later.

Its most recent acquisition of a majority share in Indian eCommerce company Flipkart, 77 percent for $16 billion, is one of the biggest in Walmart’s history. It also marks one more big  acquisition in the last 18 months, as Walmart begins to feel real pressure from Amazon’s expanding empire.

Walmart Seeking New Spaces to Grow

Over the last several years, Walmart has been slowly working to penetrate global and emerging markets. In China, the retail giant is taking a stake in JD.com, a company that competes directly with Amazon and China’s equivalent, Alibaba. In Japan, Walmart sold off stores to buy into the local eCommerce leader, Rakuten, which offers grocery delivery.

But the Flipkart deal is a much bigger situation than either of those. There are currently 443 million Millennials, who are driving smartphone penetration in the country. It’s expected to double in the next three years, according to The New York Times. CEO Doug McMillon is particularly interested in getting a piece of the Indian market before anyone else.

“When you step back and look at the world and look at all of the countries — their size, their growth rate, their potential — there just aren’t opportunities like the one we’re looking at,” McMillon told The New York Times in a conference call from India.

Investor Trust Continues to Erode

Many of the moves that McMillon has made to bring Walmart current and make it more competitive haven’t been popular with investors. They want to see short term gains instead of losses, where McMillon is focused on the long game. Whether or not he’ll be around long enough to get to the end is another question.

With the news of the Flipkart deal that McMillon is betting so much on, shares sank more than three percent. In the meantime, stable parts of Walmart’s business, like British grocery chain Asda, are being put on the auction block. Grocery rival J. Sainsbury has agreed to buy a large stake in its competitor for $3.7 billion.

Investors remain nervous, and Walmart’s new ultimate architecture remains to be seen, but something has got to start happening to the positive or shareholders are going to dump McMillon’s grand plan in favor of companies that are producing profits now, not someday.

 

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