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Wal-Mart Sets Up a New Outpost in India

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Wal-Mart is returning to India after ending its six-year long collaboration with Bharti Enterprises, just recently registering a new company called “Wal-Mart India Pvt. Ltd.” In related news, the mega-retailer announced a new president and CEO of Wal-Mart India,  Krish Iyer, effective January 20, 2014.

Wal-Mart’s experience in India has been infamously tumultuous. The company was investigated last year for allegedly violating  a prohibition against foreign investment in Indian supermarkets when, in 2010, it bought $100 million of convertible debentures from a retail unit of Indian Conglomerate Bharti Enterprise Ltd. A convertible debenture is a debt obligation that can be converted to stocks in the issuing company.  In Wal-Mart’s case, the stocks were intended to provide an equity position in Bharti’s Easyday supermarket chain.

Wal-Mart defended itself claiming it was innocent of all charges and was eventually exonerated, declared in compliance with the country’s statutory and central bank regulations governing indirect investments by India’s Finance Ministry.

Also,  Wal-Mart’s partnership with Bharti Enterprises was plagued with difficulties from the beginning. Under the original terms of their deal, Wal-Mart owned a 50 percent stake in Bharti Wal-Mart Private Limited to run wholesale cash-and-carry operations with the goal of serving small retailers, manufacturers and farmers. However, onerous restrictions on foreign investment in India have historically created a barrier to entry for foreign retailers, eventually proving too unwieldy a burden for Wal-Mart to bear.

India is one component of Wal-Marts aggressive plans for international growth. The company revealed its ambitious projections and plans for the next several fiscal years. Their eye-popping goal for 2016: $500 billion in sales, or about one-half of what JC Penney borrowed last year to shore up its capital reserves.

The capital spending for Wal-Mart in 2015 will be generous, with plans to drop $11.8 billion to $12.8 billion. The primary focus of the spending strategy will be improved technology, e-commerce and omnichannel capabilities and small-store renovations.

Wal-Mart also plans to add as many as 265 new stores, which amounts to about 21 million square feet. For the sake of context, consider that New York City’s Central Park is 36.5 million square feet.

But the number generating all the buzz is the robust prediction of half a trillion dollars by 2016, largely fueled by innovations in e-commerce strategies. Wal-Mart expects to close out 2014 having captured $10 billion in internet sales.

For a company so intent on expansion, India must be an attractive destination, brimming with unrealized potential. Currently, India’s annual retail sales top about $400 billion but, according to the estimates of many experts, could reach as much as $800 billion by 2019.

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