Walmart (NYSE:WMT) will not sell its United Kingdom-based Asda supermarket chain to Sainsbury’s. Regulators in the U.K. blocked the proposed merger on antitrust concerns. Walmart stock fell by almost 2% in Friday trading following the failed union.
Source: Mike Mozart via Flickr
Walmart could easily find other options. However, this speaks to a bigger problem the company must address: its strategy abroad.
Since opening stores outside of North America, the company abandoned markets as it faced regulatory setbacks, cultural clashes, and unexpected competition. Now that it remains the owner of Asda, the company can begin again to try to find an effective strategy for competing abroad.
Walmart and Amazon
Contrary to popular belief, Walmart’s biggest competitive threat does not come from Amazon (NASDAQ:AMZN). Over the last few years, Walmart stock has swooned over the threat of Amazon. However, it has also made a significant comeback on the company’s successes as an omnichannel retailer.
Nor do its issues lie with the sale of Asda itself. Yes, the failed merger presents a temporary setback. However, Walmart could still spin off the company by launching an IPO. It could also sell Asda to a private equity firm.
Walmart International Woes
However, the issues with Asda point to the most significant long-term challenge Walmart stock faces—Walmart itself. Specifically, the problem lies with Walmart International. The company has consistently failed to compete outside of North America.
When Walmart first opened stores in the U.S., it found success in both Canada and Mexico. However, attempts to sell outside of these markets have led to numerous failures.
Also, Walmart became one of the first American companies to enter the Chinese market. Despite the first-mover advantage, it only operates about 400 stores, a relatively small number for a country with 1.42 billion people.
Lately, the news has focused on store closures and strategic pivots rather than expansion.
In fairness, WMT has surpassed Target (NYSE:TGT) in this area. Higher prices and an aggressive move to expand led Target Canada to shut down just two years after opening its first store. However, Costco (NASDAQ:COST) and Amazon have not encountered the same cultural issues in their moves abroad.
This bodes poorly for Walmart’s future as it has largely saturated the U.S. market. Although successes with online sales garner headlines, overall company growth remains in the single-digits. In the long run, it has nowhere to grow without succeeding abroad.
Final Thoughts on Walmart Stock
The failed attempt to sell Asda to Sainsbury’s highlights Walmart’s failure to export its retail model abroad. Antitrust authorities have determined that Asda and Sainsbury’s must remain separate. This changes the game for Walmart. They must now find a new buyer or try again to succeed with Asda.
This failure speaks to the biggest threat to Walmart stock, the lack of success at Walmart International. Headlines of the company’s online success will boost WMT stock for a time. However, longer term, the saturated U.S. market will force them to again look abroad for growth.
For this reason, I think Walmart needs to treat the canceled merger as an opportunity to try again to succeed with Asda. Their peers have shown that companies can overcome such differences.
Now Walmart must find a way forward. Unless they can solve this problem, Walmart stock could become a stagnant equity supporting a single-digit multiple. The choice is theirs.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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