News that Wal-Mart has applied the brakes to its India expansion is no indication the retailer has gotten cold feet, despite a management shake-up and an ongoing investigation tied to the Foreign Corruption Practices Act.
Wal-Mart said Tuesday (Aug. 27) the retailer is optimistic about growing its Best Price Wholesale cash and carry business in India as well as future retail investment opportunities that may be possible through the Foreign Direct Investment policy.
Retailers like Wal-Mart, Tesco and Carrefour have been licking their chops for several years about the possibilities in a $396 billion retail market that is likely to grow by 12% to $574 billion by 2015, according to Deloitte.
Recent news reported out of India indicates Bharti Retail, Wal-Mart’s 50% partner since 2007, has returned more than two dozen properties back to landlords, which were leased throughout the country to open Easyday stores.
Wal-Mart, which operates a cash and carry venture with Bharti, lobbied hard for the entry of foreign supermarkets into India, and was expected to be the first foreign retailer to set up shop in the country. The last two stores opened by Bharti Walmart was in October 2012 and the retailer appeared to be expanding its reach albeit at a cautious pace.
In July, sources out of Bentonville said it would likely be 2015 before Wal-Mart ramped up its expansion in India.
Wal-Mart reportedly cooled its heels as news of an investigation into the legality of the $100 million Bharti Walmart transaction years ago came to surface earlier this summer.
“We appreciate the continued efforts by the Indian Government to clarify investment conditions. Reform of this policy will improve shopping options for customers, provide new markets to local suppliers and farmers, and improve supply chain infrastructure in the country. We continue to review the guidelines and work with the government to understand the rules that exist for foreign direct investment. In every market where we operate, Wal-Mart is a strong supporter of small and medium enterprises with a focus on those that provide our customers with competitive and quality products,” a spokeswoman from Walmart India noted in an email Tuesday (Aug. 27).
An internal investigation is also underway into whether company executives in India committed any violations of the FCPA, a broader audit of bribery allegations in the retailer’s Mexican business unit.
Analysts with Deloitte said there is also the Parliamentary elections in 2014, which could further hinder retail expansion should opposition parties win and then reverse the recent decision to allow foreign ownership. Any or all of these developments are enough to sideline global retailers in India for the time being, analysts said.
This pause in expansion does give Bharti Walmart time to re-assemble its leadership team following a suspension of Bharti executives and the resignation of CEO Raj Jain in June. Jain had overseen the Indian market since 2007. Earlier this month, Wal-Mart transferred its chief operating officer for Bharti back to the U.S., after one year running that local business.
Wal-Mart said it will continue to invest in India with its cash and carry business, supply chain infrastructure as well as its direct farm and supplier development programs that not only will serve customers but also make important social and environmental contributions to the country.
“We think India’s best days are ahead, and we are excited to be a part of this opportunity. Modern retailers worldwide bring about large-scale, high volume sourcing, coupled with a strong technological edge and supply chain efficiencies. These have a direct positive impact on consumers who benefit by getting a wide assortment of quality goods at low prices,” the Walmart India spokeswoman added.