Here’s Why the Cornershop Acquisition Could Be Huge for Walmart Stock

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Walmart stock - Here’s Why the Cornershop Acquisition Could Be Huge for Walmart Stock

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Walmart (NYSE:WMT) made an acquisition that could have some real implications for Walmart stock, but the news passed without much comment.

At first glance it just looks like another throw-away press release. Walmart always has some sort of corporate maneuver underway, most of which mean very little to its customers or shareholders. Besides, how big of a deal could a $225 million acquisition be? The world’s biggest retailer has generated more than $500 billion in revenue over the course of the past four quarters.

Owners of Walmart stock may want to take a closer look at last week’s news though. The purchase of Mexico’s grocery-delivery outfit Cornershop may be more of a game-changer than most observers realize.

See, the biggest single piece of Walmart’s international business doesn’t come from Asia. It comes from Latin America, and Mexico in particular, where rival Amazon.com (NASDAQ:AMZN) isn’t terribly well entrenched just yet.

Already There

Walmart explained in its press release that Cornershop was “a leading online marketplace for on-demand delivery from supermarkets, pharmacies and specialty food retailers in Mexico and Chile.”

The knee-jerk reaction for some may be “so what?” Walmart isn’t exactly crushing it in terms of deliveries in the United States, so why would grocery delivery options in Mexico be any more fruitful? Besides, isn’t China supposed to be the next big growth market?

China and neighbors are certainly an enticing possibility, with or without the overhang of tariff wars. Most of Asia has proven a tough market for once-wide-eyed Western companies though.

Not only do Chinese and Japanese consumers think and act differently from their North American counterparts, most foreign governments in that region don’t exactly roll out the proverbial red carpet for organizations that are ultimately going to take money out of their respective economies.

That’s a big part of the reason there only slightly more than 400 Walmart stores in China. Japan is home to a little over 300 Walmart-owned Seiyu stores, but most of those are just grocery venues.

Mexico, conversely, is home to a few more than 2,400 Walmart locations. Chilean consumers have access to almost 400 Walmart-operated stores. For perspective, Walmart operates nearly 6,400 units outside of the United States.

Point being, the company’s already established a major geographical footprint and scale in a relatively small market. If Walmart is going to invest anywhere, Latin America is its best bet.

Walmart Stock and Latin America

Even with the significant store count, are Mexico and Chile ready to make the Cornershop/Walmart alliance their go-to solution?

Walmart stock holders can certainly see both sides of the story. On the one hand, market research firm Euromonitor International says only 3% of Mexico’s retail sales are made online.

If even Amazon’s service to the Mexican market can’t get a wider swath of those consumers to shop online, grocery stores may face an even tougher sell. On the other hand, Euromonitor also believes grocery delivery outfits like Cornershop delivered $800 million (Mexican) worth of groceries last year, up from none just a few years earlier.

The Mexican Internet and Mexican Online Sales Association estimates that online sales of all goods in the country grew 30% during the first half of the year… a growth rate not difficult to believe given the fact that nearly two-thirds of Mexico’s residents now have regular access the internet.

As was the case in the United States a little less than a decade ago and in China roughly five years ago, smartphones are quickly becoming the new norm in Mexico.

Adding validity to the argument that the Mexican market is ripe to borrow a page from the playbook being used by its neighbors to the north, Amazon announced late last month that it plans to start selling food and beverages in Mexico.

Loup Ventures’ Gene Munster said of Amazon’s move: “Non-perishables are the first step to capturing food spending, and likely indicate Amazon’s ambitions to increase its offering related to fresh food.”

If that is indeed the case, it plays right into the hand Walmart is now holding. Indeed, Walmart stock holders may actually have good reason to celebrate the retailer’s edge on this front.

Jose Acosta, CEO of digital payments application Pagamobil, explained just a couple weeks ago, “Brick-and-mortar players have done a very good job of defining a very wide catalog, and that’s not something you develop so fast.”

Looking Ahead for Walmart Stock

Nobody really knows where all of this may lead. Most delivery services are still money losers. They’re still being cultivated by companies like Walmart, Amazon and Target (NYSE:TGT), both for their potential and because rivals are doing the same. It’s not been entirely clear if delivering goods has actually grown sales, or merely prevented the loss of sales to rivals.

Whatever the case, Walmart’s acquisition of Cornershop is arguably bigger deal than the modest buzz about the news would imply. Most of the sizeable Mexican consumer market is about to be introduced to something they’ve never quite seen before, coming from a local company most of them are plenty familiar with. That kind of thing matters outside of the United States.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/walmart-stock-cornershop-acquisition/.

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