COST Costco Wholesale Corporation

Wal-Mart Stores Inc. (WMT), the world's biggest retailer, may form an alliance with India’s biggest retailer Future Group.

The company hopes to pick a stake in the back-end operations of Future Group’s Big Bazaar. WMT also has an eye on expansion in the front-end business when regulation in India becomes flexible enough to permit foreign players to enter into front-end retail.

Future Group is one of India’s leading business houses with multiple businesses spanning across the consumption space. While retail forms the core business activity of Future Group, subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, brand development, retail real estate development, retail media and logistics.

Senior officials of the Future Group and Wal-Mart have met at least five times in the past four months. Future Group owner Kishore Biyani visited Wal-Mart's headquarters in the US, last December where he met Doug McMillon, president and CEO of the American company. The alliance between the two retailers may give a whole new shape to organized retail in India.

In fiscal 2006, Wal-Mart entered into a joint venture with Bharti Group in India with the venture named as Bharti Walmart. Bharti Walmart is operational in the wholesale and back-end segments, the two areas where foreign players can operate in India. However, Wal-Mart seems to be unhappy with the pace of expansion of the business. As per the data from the Registrar of Companies, the joint venture reported a loss of Rupees 151 crores in calendar year 2009. This might be one of the reasons that prompted Wal-Mart to seek another partner to expand operations in India.

Based in Bentonville, Arkansas, Wal-Mart Stores operates retail outlets in various formats across the world. The company conducts its business through three segments:  Walmart U.S., International and Sam’s Club. 

Wal-Mart has a significant presence in the international market. The international segment of the company consists of retail operations in 14 countries and Puerto Rico. Total sales at the international segment came in at $100,107 million in fiscal 2010, up 1.3% year over year. We believe that the significant international presence has boosted growth and will continue to do so in the coming years.

Though Wal-Mart’s significant international presence helps to diversify its customer base, fluctuations in currency exchange rates can adversely impact the company’s international sales. Further, Wal-Mart operates in a highly competitive retail market. All three business segments of the company compete for customers, employees, store sites, products and services. The company is in direct competition with Costco Wholesale Corporation (COST) and Target Corp. (TGT)

We maintain our long-term “Neutral” recommendation on Wal-Mart. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

 
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