Amid Walmart's Worldwide Rebuild, Central America Retains Allure

(Bloomberg) -- Walmart Inc. has dialed back its global footprint this year -- retreating from Brazil and merging its U.K. business with a rival. But while the world’s largest retailer is stepping away from some high-profile international markets, it’s doubling down in a region that gets less attention -- Central America.

Walmart’s business in Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica is a growing part of the retailer’s publicly traded Mexican and Central American business, Wal-Mart de Mexico SAB, or Walmex. The region now accounts for almost one-fifth of Walmex’s revenue, up from 14 percent in 2014.

Over the same period the retailer has added more than 100 Central American stores, ranging from small bodegas to Supercenters, all of which tout the company’s mantra of everyday low prices. While Mexico has been a bright spot for Walmart pretty much since Sam Walton opened a location there in 1991, Central America represents a more fertile area for growth, analysts say.

“Mexico has almost always been much more profitable than the other parts of Walmart,” Dave Marcotte, an analyst at Kantar Retail, said. “They have best-in-class concepts and processes in place in Mexico to roll out into Central America.”

Walmart is pulling back from markets where it hasn’t been able to grow, such as Brazil, in order to refocus on big bets such as India and China. While the company’s operations in Central America contribute only a small amount to revenue, they fit the model of doubling down on higher growth regions.

Central America has increasingly helped fuel Walmex’s earnings before interest, taxes, depreciation and amortization while the parent Walmart has seen declines due to the massive investments the retailer is undertaking to grow its U.S. e-commerce business and fend off Amazon.com Inc.

But the path to expand online sales -- largely virgin territory in Central America -- is clear for Walmart, since Amazon is only just arriving and Latin American e-commerce firms MercadoLibre Inc. and B2W Companhia Digital are mostly focused on South America.

Walmart may get a further boost if Central American economies expand as expected: The International Monetary Fund forecasts growth of 3.9 percent this year and 4 percent in 2019. That’s more than twice the pace of South America’s growth.

The retailer’s sales in Central America more than doubled to 107.4 billion pesos ($5.2 billion) in 2017 from 49.7 billion pesos in 2011. That outpaces the 41 percent growth over the same period for Walmart’s Mexico business and growth of 19 percent in the U.S.

©2018 Bloomberg L.P.

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