In a move that surprised some industry watchers, Wal-Mart Stores said today (13 December) that it would close its office in Moscow, where it has spent two years studying how to enter Russia’s fast-growing retail sector.
The world’s largest retailer set up in the Russian capital in 2008 and, since then, the company has been linked to a raft of local retailers.
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Dixy, Lenta, O’Key, Kopeyka: you name them, all have been put forward as takeover targets for Wal-Mart, which has burgeoning businesses of different kinds in the three other BRIC markets but has yet to find a way to enter Russia.
Doug McMillon, head of Wal-Mart’s international business, said today that Russia remained “a compelling retail opportunity”. He insisted that Russian consumers “could benefit from Wal-Mart’s value proposition”.
However, McMillon said there was “no clear acquisition partner” for Wal-Mart in Russia and explained that, while the retailer would “pursue opportunities” to enter the market, there was “not a business reason” to keep the Moscow office open.
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On paper, the opportunities for multinational retailers are clear. A vast population becoming wealthier and consumers keen to sample Western goods. Some retailers -Auchan, Metro Group – have made inroads. However, some, like Wal-Mart rival Carrefour, have decided to pedal back and quit the market.
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By GlobalDataThe challenges of distribution, logistics and regulations also make Russia a tricky place to do business and success is not guaranteed. Russia’s food retail sector also has some entrenched domestic players that are keen to expand and, perhaps tellingly, the US retailer’s announcement today came a week after the country’s largest retailer, X5 Retail Group, said it had struck a deal to buy discount chain Kopeyka, a rumoured Wal-Mart target, for US$1.6bn.
Wal-Mart refused to be drawn on whether the sale of Kopeyka to X5 was a reason for its decision to pull down the shutters on its Moscow office and it is uncertain whether the US group was indeed interested in buying the discounter.
However, Wal-Mart has periodically been linked to Kopeyka over the last two years and, what’s more, Andrei Gusev, X5’s M&A director, said there had been “serious international interest” in the discount chain.
What is (almost) certain is that Wal-Mart would have run the rule over Kopeyka and that, ultimately, perhaps it did not place the value on the business that Gusev and the rest of the X5 management did.
In the wake of the announcement of X5’s agreement with Kopeyka, Russian retail analysts argued there was still scope for Wal-Mart to make an acquisition in the country – although they conceded the number of likely targets was receding.
“We think there are other targets left although the list is getting smaller,” RenCap analyst Natasha Zagvozdina told just-food last week. “The market for Wal-Mart is still in favour of an M&A-based entry, and there are still targets available.”
Zagvozdina put forward Lenta, while UBS analyst Svetlana Sukhanova suggested O’Key, which has recently listed in London, and another retailer, Victoria Group, as possible targets for Wal-Mart.
Still, amid the speculation, what we do know is that, for now at least, Wal-Mart has decided to pay less attention to Russia and instead focus more on international ventures elsewhere. Africa, for one, will be key for Wal-Mart as it looks to secure a 51% stake in South Africa’s Massmart Holdings.
Within Russia, the likes of X5 are likely to be quietly smiling this afternoon.
