Wal-Mart Takes Its Time on Expanding in Africa;
Massmart subsidiary builds slowly from base in South
Africa, even as continent's consumer class grows
Wexler, AlexandraAuthor Information. Wall Street Journal (Online); New York, N.Y. [New York,
N.Y] 09 Feb 2017: n/a.
JOHANNESBURG–After some costly stumbles on its march into developing markets, Wal-Mart
Stores Inc. has adopted a different strategy for Africa: taking it easy.
When the U.S. retail behemoth bought a $2.4 billion majority stake in South African retailer
Massmart Holdings Ltd. in 2011, it trumpeted the potential of the continent's burgeoning consumer
class. At the time, Massmart had 26 stores outside its home market; in the five years since, it has
added only 13 of its signature large destination-type outlets. In that same span, by contrast, rival
Shoprite Holdings Ltd. has opened 182 of its mostly smaller, grocery-centric stores outside South
Africa, for a total of 375.
Some analysts and investors wonder whether Massmart's slow expansion means Wal-Mart is losing
interest in its African venture. But Guy Hayward, who took over as Massmart's chief executive in
June 2014, says the modest pace is part of "a very deliberate strategy" and not a sign of weakness.
"If being sort of Steady Eddie is described as a criticism, I'm happy to be criticized," said Mr.
Hayward, a South African native who joined Massmart in 2000.
In August, Massmart announced plans to open five new stores in Africa beyond its home market
through 2017, while Shoprite set out to add 46 stores outside South Africa in the 12 months to June
2017. Mr. Hayward notes that its outlets–most of which bear its Game and Builders Warehouse
brands–average about 3.5 times the sales of a typical Shoprite store.
Some retailers who rushed into African markets have paid a steep price. Woolworths Holdings Ltd.,
an upmarket retailer of groceries and clothing in South Africa, closed its three Nigerian stores in late
2013, citing high rents, a lack of shopping malls and intense bureaucracy. In 2011, Pick n Pay
Stores Ltd. entered Mozambique and Mauritius, but exited both markets two years later, citing
unprofitability and differences with its respective franchisees.
More broadly, recent sharp fluctuations in African currencies–a result of the commodities crisis–
have jolted businesses including retailers, especially because loans in many African countries are
dollar-denominated. And inflation, a malady in various economies on the continent, has cut into the
buying power of middle-class consumers.
Wal-Mart's slow but deliberate approach to Africa diverges from past strategies in developing
markets, where aggressive expansions hit hurdles.
Last year, Wal-Mart closed 115 outlets in Latin America, leaving its store count in the region at
roughly 4,000. In China, the company has slowed store growth, and in June sold its Yihaodian
website for a stake in local online retailer JD.com Inc.
A five-year U.S. investigation into possible foreign bribery has dogged Wal-Mart in Mexico; and the
probe, which is related to store openings, has also pointed to possible misconduct in Brazil and in
India. Wal-Mart, which didn't respond to requests for comment on its African strategy, has said it is
cooperating fully in the various investigations. But the company's efforts to improve compliance have
slowed expansion in some markets, according to a former employee familiar with the situation.
Massmart's Mr. Hayward concedes that the chain's approach in Africa is partly born of necessity.
Sketchy land registries, sudden changes to local laws and property owners holding out for a
bonanza are only a few of the hindrances to doing business.
"The rule of thumb is probably about three years from first meeting a developer on a dusty piece of
land to opening the stores," the 51-year-old CEO said. "This is their once-in-a-lifetime payday and
valuations are crazy."
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