EconomyFinancialWhat does Walmart gain from adjusting its operations in...

What does Walmart gain from adjusting its operations in Central America?

Walmart is preparing a movement in its files for the Central American market and revealed that it is analyzing the sale or strategic alliances for its stores in El Salvador, Honduras and Nicaragua. And although this movement is not definitive, if it is carried out it will allow the supermarket chain to focus its efforts and capital on its main businesses and geographies.

For Carlos Hermosillo, an independent stock market analyst, more than better execution or redirection of resources to other regions/countries, the initial focus of this change is to improve operations in these countries, before thinking about abandoning these markets.

“It seems to me that, as a first option, Walmart would seek a point of support with local partners that provide some competitive advantage in the operation, since the business environment in these specific countries is complicated, within the Latin American context. If it is not an option, then we would see the exit of these markets and a new allocation of resources in the regions where they decide to continue operating”, he declares.

Guilherme Loureiro, executive president and general director of the company, advanced in a statement sent to the Mexican Stock Exchange (BMV) at the end of January, that by seeking to prioritize its resources and accelerate its ecosystem in Costa Rica, Guatemala and Mexico, there may be attractive opportunities for further growth in El Salvador, Honduras and Nicaragua, which could be better captured under a different structure.

Operations in Central America are consistent and as of September 2021, the company had 864 units in Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua, according to the financial statement that the company sent to the BMV.

In the third quarter of 2021, stores invoiced 30,443 million pesos, an increase of 13.9% compared to the same period of 2020. This figure represents 17.4% of total revenues, which totaled 174,577 million pesos. In the period, sales growth in Mexico was 7.7%.

Until the third quarter of 2021, Walmart had two main initiatives for Central America: to focus on Warehouse and Discount as its main growth drivers, in addition to cost reduction. With these objectives, in the event of the sale of operations, the specialists agree that the company would have fresh resources to accelerate these low-price formats and, at the same time, seek a better competitive position and market share.

And own brands are also advancing. Through the third quarter of 2021, the sales penetration of Walmart brands increased 100 basis points, and the firm considers that there is a possibility that they will gain share, which will allow balancing the investments in prices and profitability.

Julián Fernández, chief analyst at Leag Academy, comments that if the adjustment is made in the markets, Walmart will have the opportunity to focus on its operations in Mexico, in addition to protecting its margins and profits, since in Central American countries the impact of the strength of the dollar is greater, to which is added the impact of inflation experienced worldwide, situations that are always taken into account by companies with operations in various countries.

“There are many indicators that point to this being the correct decision. It is the right time to be able to take action on the matter and consider, after a cost-benefit analysis, consider maintaining operations in Central America. For now, Walmart is focusing on Mexico with reconversions and adjustments, with projects such as gas stations, and the next step is to leave the markets that are not as efficient,” he says.

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