Wal-Mart Invests $1.1B in Mexico and Central American Unit
Wal-Mart Stores (NYSE:WMT) is betting its pesos on the company’s Mexican and Central America divisions. Amid declining sales in the U.S. and profit forecasts that don’t even come close to hitting analysts’ estimates, Wal-Mart said in a statement Monday that it plans on putting 15 billion pesos ($1.1 billion) toward its Mexican and Central American units to help open stores and improve e-commerce technology. Bloomberg reported the news at the beginning of the week, and said Wal-Mart is hoping that the increased investment will trigger growth in the region as the company suffers disappointing sales in its domestic market, the U.S.
According to Wal-Mart’s statement, the company will spend 8.4 billion pesos opening stores in Latin America, and work to add about 3.7 million square feet of space. That will lead Mexican floor space to grow 5 percent, while Central American stores expand 7.6 percent. Wal-Mart’s Mexican business, Walmex, will especially be a focus as it spends 3.5 billion pesos of its expansion budget on remodeling and maintenance. Another 1.2 billion pesos will go to logistics, as 1.9 billion goes to bolstering its e-commerce technology.
The increased investment in Walmex stores is significant as the Mexican business has proven to be a point of controversy for the Bentonville, Arkansas-based chain. It has now been a few years since Walmex was charged for using bribery to get its way in the country, but Wal-Mart is still navigating the consequences and working to resurrect its good image. With Walmex’s new investment, it is possible that the unit has a goal to start fresh and update its technology and offerings so much that it can quietly push its past issues under the rug.
Like many brick-and-mortar retailers, Wal-Mart is now facing slowing sales, not only in the U.S., but also abroad. Bloomberg reported Monday that David Cheesewright, head of Wal-Mart’s international unit, says that consumers around the world are stressed, with “significant slowdowns” in many markets, even those of the faster-growing developing countries. That is bad news bears for Wal-Mart as it has no room for global slowdown thanks to sales already suffering in its domestic market. The combination of currency fluctuations, lower food-stamp payments, higher taxes, the inability to keep shelves fully stocked, and sluggish economies is enough to make Wal-Mart’s sales look paltry, and that they currently do.
Wal-Mart’s released its annual profit forecast last week, and that figure, too, missed analysts’ expectations. Bloomberg reports that Wal-Mart expects profit per share in the year through January 2015 to be $5.10 to $5.45, while analysts expected a $5.55 figure.
That’s why Wal-Mart is now turning toward its Mexican and Central American units — two divisions that still show some potential for growth. Food, consumables, digital and self-service sales currently drive growth at Walmex, and the company believes results can improve even more. Hopefully Wal-Mart executives are right, as it will be quite an investment, but for now, it’s evident they’re sticking to their guns.