AddThis

Walmart playing possum with refined acquisition strategy

Related Content

No related items were found.

Let’s say you are a major global retailer, perhaps the largest in the world, and interested in expanding into markets beyond the 28 where you currently have a presence. Is the better strategy to publicly identify new markets of interest and a timetable for entry, thereby elevating asset prices, or to shun deal-making to pursue ample organic growth opportunities in existing markets all the while reserving the right to strike opportunistically when market conditions are most favorable?

Walmart has clearly chosen the latter as was evident from comments made during the company’s 18th annual analysts’ meeting where international president and CEO Doug McMillon addressed the acquisition issue for the 1,000th time.

“We really like the markets we are in,” McMillon said, repeating a familiar comment from prior appearances before investors where questions about acquisitions inevitably arise from those concerned about the typically negative impact on returns caused by acquisitions.

To be sure, Walmart doesn’t need to do any deals for several years as it hasn’t come close to tapping the opportunity that exists in many of its markets, especially China and India where the company and other global competitors are waiting for foreign direct investment rules to change so they can expand more rapidly.

This year, the company is on track to add between 10 million and 11 million sq. ft. of selling space domestically, but internationally the figure is more than double that amount at between 24 million and 25 million. The trend of international growth outstripping domestic expansion will continue next year too, with between 26 million and 28 million sq. ft. on new selling space coming online compared with 14 million to 15 million domestically.

With organic growth prospects like that, who needs acquisitions? Or put another way, who needs to talk publicly about acquisition plans since they clearly aren’t needed for growth. The other reality is that Walmart might be better off focusing on improving the performance of its existing operations and driving higher levels of profitability before taking on the challenge of integrating any new international acquisitions. Unless of course the right deal came along at the right price in the right country. If that were the case, no matter how much Walmart likes the markets it is already in the company has the credit rating and financial flexibility to pull the trigger.