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Walmart Is Making a Major Shift to Online, Global Strategy, Says Moody’s Report

Walmart Inc. is counting on international and online growth to see it into the future.

And the retailer’s recent investment in Chinese online grocery delivery company Dada-JD Daojia, may be evidence of such.

A new report from Moody’s lead retail analyst Charlie O’Shea, published in advance of Walmart’s second quarter earnings due out Thursday, said Walmart’s recent $500 million investment in Dada-JD Daojia, in which it teamed with JD.com, “signals just how aggressively the company is revamping its international strategy.”

And the move comes three months after Walmart paid $15 billion for a 77 percent stake in Indian e-commerce company Flipkart.

“We believe Walmart’s big shift in international strategy is a clear indication that it is looking for new ways to offset the intense competition that continues to squeeze profit margins in the mature U.S. market,” O’Shea said. “A major retailer like Walmart needs to remain on the move, especially when up against a voracious growth-oriented competitor in Amazon. Walmart has a lead in India, at least for now, over Amazon.”

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Walmart’s square aim at Amazon has been no secret, and the company has proven how serious it is about quickly growing its e-commerce capabilities, making efforts including acquiring Jet.com for $3.3 billion in August 2016. The shift in international strategy began in April when Walmart said it would reduce its holding in U.K.-based Asda by selling its stake to Sainsbury. It will retain a 42 percent stake in the merged company, but will relinquish control of one of its biggest international operations.

Then in June, Walmart said it was selling 80 percent of its business in Brazil, taking a $4.5 billion charge to do so. O’Shea said these major actions, which vastly reduce its presence in two significant markets, going “all-in” in India, and “show that Walmart is not wedded to assets that don’t fit with its growth strategy.”

It’s likely that Walmart will make another acquisition in the next couple of years, likely for a more mid-sized company rather than another large deal, O’Shea said.

“India, meanwhile, has the potential for explosive online growth,” according to O’Shea. “Even though Flipkart generates losses and will for at least the next few years, many estimate that online sales in India could potentially grow to $200 billion over time. While Walmart is spending heavily for this growth, and the deal may not end up scaling profitably for some time, revenue has the potential to take off.”

India’s market compares to a U.S. online sales market that equals an estimated $600 billion in sales. Brick-and-mortar retail in India is also much less developed than in the U.S., which increases the importance of online.

O’Shea said while Amazon’s initiatives have been smaller, it’s clearly looking at India, too. For example, Amazon led a $12 million investment in the subsidiary Acko General Insurance, an India-based online auto insurance start-up, one of several investments Amazon has made in the country over the past few years, the Moody’s analyst noted.

In June, Amazon acquired online prescription start-up PillPack, which likely has annual revenue in the $100 million range, he said, and also announced an initiative to allow entrepreneurs to participate in delivering products, ostensibly aiming to close the critical “last mile” competitive gap.

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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