(Bloomberg) -- Walmart Inc.’s plan to shed control of its U.K. grocery chain, Asda, reflects a global strategy to emphasize faster-growing markets over some of its more mature ones.
The world’s largest retailer said Monday that Asda will combine with British retailer J Sainsbury Plc, mixing the U.K.’s second-biggest supermarket chain with No. 3 Asda in a deal worth about 7.3 billion pounds ($10 billion). Walmart will retain a 42 percent stake in the combined company, and will take a noncash loss of about $2 billion on the transaction, according to a statement.
Walmart is pursuing faster-growth markets overseas, including China and India, while battling e-commerce giant Amazon.com Inc. in its core domestic market. It’s close to completing a deal for a majority stake in India’s biggest online retailer, Flipkart Online Services Pvt, Bloomberg reported last week.
“They’ve consistently exited underperforming markets or markets where they just haven’t been able to really get their offering deeply embedded with the customer base,” said Jennifer Bartashus, senior consumer analyst for Bloomberg Intelligence. Moving ahead, “it’s going to be much more of a contained strategy in areas where there’s a substantial amount of income and population growth that will become a key customer base.”
Walmart probably will expand in countries where it already has a presence and international partners for now, rather than targeting entirely new markets, she said. The company may shed its investment in its struggling Brazilian unit, she said.
The deal is an example of how Walmart is thinking differently about its global portfolio, said Judith McKenna, the company’s international president.
“We are looking at different ways of operating, and in the U.K. we feel we don’t have to be in control to get the benefits,” she said on a call with reporters. The retailer is particularly interested in potential advantages from Sainsbury’s Argos unit, which offers home delivery of clothing, household items and other goods in as little as four hours, McKenna said.
Walmart bought Asda for 6.7 billion pounds in 1999, during a time of aggressive expansion for the Bentonville, Arkansas-based retail giant. Asda was seen as appealing to price-conscious consumers, where Sainsbury targeted a higher-end demographic, and both trailed industry leader Tesco Plc. However, the entrance of two low-price players into the U.K. scene -- Lidl and Aldi -- ate into Asda’s market share.
Walmart can now apply what it learned from Asda, especially in online retailing, to other markets including its U.S. operation, Bartashus said.
“They’ve extracted a lot of knowledge out of that, and this may be an instance where at this point they may be deciding to focus on higher-growth international markets given the competitive landscape in the U.K.,” she said.
Walmart shares rose as much as 2.7 percent to $89.66 on Monday, the most in more than six weeks. The stock had fallen almost 12 percent this year through last week.
In recent years, Walmart has pulled away from international markets ranging from Germany to South Korea, while growing rapidly in China by partnering with that country’s second-leading online mall operator, JD.com Inc., and expanding its Sam’s Club stores. The next few months could see a flurry of activity as Walmart narrows its focus further.
©2018 Bloomberg L.P.