In September 2012, Walmart (NYSE:WMT) pledged publicly that it would open its first retail store in India by September 2014. The world's largest chain now says that it's unlikely that it will even apply for its first Indian retail store license before March 2015, adding that it would likely need an additional 12-18 months "after winning government approval to open each store, which means its first retail outlet in the country would open in 2016 at the earliest," Reuters is reporting.
More bad news, which may be very related: Bharti Enterprises, Walmart's local partner in an existing India operation, is reconsidering its commitment to the joint venture given the heavy investment requirement and distant prospects for returns, four sources with direct knowledge of the matter told Reuters.
Part of the challenges relate to Walmart's global bribery probes—including one in India—but potentially bigger issues are governmental and political changes locally. The national elections slated for May 2014, for example, might overturn the retail reform, which could shut down any newly opened stores, Reuters said.
The India market is huge and extremely attractive from a revenue perspective, but the initial years of any foreign move might be very tight profit-wise. Indeed, even most local large retailers struggle with profits. The Bharti Walmart wholesale joint venture lost 2.77 billion rupees ($48 million) on sales of 18.8 billion rupees in 2011, according to the most recent regulatory filing.
Walmart is officially playing down its India delays: "We are in the process of implementing additional controls for our new store permit and licensing program to ensure the process is handled appropriately and in full compliance with all laws and regulations. As we develop and implement enhanced procedures for obtaining licenses, there have been some temporary delays in store openings," Walmart said in a statement sent to Reuters.
Normally, such expansion delays—especially when they contradict announced plans—are difficult, but given the changing environment within India, there is certainly a strong rationale for such a delay. The cost of moving into India would be a rounding error compared with the cost of having to pull out. Therefore, waiting a little less than a year for the national elections to happen and to see if foreign retailers are even welcome anymore, seems the most prudent approach.
- See Reuters story
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