Wal-Mart and Bharti partnership seen as profitless for up to five years
Posted by: in Stocks Money NewsFiled under: Bad news, Competitive strategy, Wal-Mart (WMT)
Wal-Mart Stores (NYSE: WMT) announced this year that it would be partnering with Indian retail company Bharti to establish itself in that booming market in the wake of international failures in both South Korea and Germany in 2006.
India and China are two markets where the world’s largest retailer needs an instant presence apparently, and instead of going it alone this time, the retail giant is partnering with established, in-country players to ensure its success.
But if it’s instant success the retailer wants, it won’t come in the way of profits. Bharti’s chairman this week noted that high rental costs in India will likely force the Wal-Mart partnership to post losses for the first four to five years in that country — probably not something Wal-Mart needed to hear. It’s hard to imagine commercial rental prices being high enough to damp profits on a burgeoning venture like a Wal-Mart partnership, but according to Bharti that is precisely what will happen, as the rental situation is being described as a “dilemma.”
However, it’s not that Wal-Mart is opening stores on every corner in India or anything — the retailer plans to open 15 facilities over the next seven years in the 50:50 retail joint venture, with sizes ranging in the 4,500 square meters to 9,000 square meter space. That’s tiny compared to existing U.S. Supercenters, so Wal-Mart’s strategy here is apparently to start small and grow like the dickens at the most appropriate time. If Wal-Mart hoped to make up for slowing sales in the U.S. with sales from its Indian venture, that probably won’t cut it. My perception is that China is the larger short-term opportunity here.
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