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BW Businessworld

Walmart's India Woes

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The sudden exit of Bharti-Walmart’s Best Price Cash and Carry CEO, Raj Jain, was triggered by his inability to influence the government’s FDI policy favourably, say sources. Repeated phone calls and text messages to Raj Jain remained unanswered. “He is from an FMCG background, he could set up the initial network and operations, but Walmart’s aspirations in India were different and Raj was asked to leave for those reasons,” says a source.

On 26 June, Walmart said its country head Jain, left the company and the company had named Senior Vice-President for Walmart International Ramnik Narsey as interim replacement. Jain joined Walmart in 2006.
 

With the government’s recent clarification dated 6 June making foreign entry into multi-brand retailing more ambiguous, the announcement complicated the relationship between Walmart and its Indian partner, Bharti Retail. The ambiguity is in the details; in addition to making it compulsory to invest in back-end infrastructure at the greenfield stage, the government does not define whether existing front end stores are considered part of the greenfield investment. Therefore leaving to debate whether a foreign company can buy existing stores or not.

Bharti finds itself in a fix because in this slowing market it cannot invest money to support expansion of the cash-and-carry format where it is a 50 per cent stakeholder. Bharti has already committed over $2 billion for the front end Easyday stores and the company was expecting these stores to be the valuation for Walmart’s entry into the front end. Since the government has scuttled any of those plans for Walmart, India was a bad short-term bet. For now, it seems domestic retailers Reliance Retail and Aditya Birla Retail have won the first battle of lobbying in this war of conquering the Indian retail industry.

What also made matters worse for Raj Jain was the fact that the India operations, sources say, were unable to perform according to plan and were burning cash instead. Sources also said that although Raj Jain had opened 22 cash-and-carry centres across the country, only 60 per cent of the stores were profitable. Many of the stores are less than three years old and need at least five years of operations to break even. Off the $500 million committed to the business, $300 million has been already sunk in to setting up the stores and building a network of a 1,000 suppliers. Retail experts point out that Walmart globally is a front-end operator and it has no expertise in building the wholesale business. May be it will become one of the largest cash and carries in India if policy changes do not happen.

Internal sources told BW|Businessworld that Raj Jain was a CEO who fitted into the company’s scheme of things when it was starting out in India because retailing was all about making a story out of its benefits for the Indian community. Five years later, the story is still the same and Jain was not able to crack different people at the policy level.

Instead, it now wants to shed the negative image building around Walmart globally. The company is facing corruption charges in Mexico and in the process it has launched an internal probe in India, Brazil and China. Last November, the retail giant had sacked some senior team members including its chief financial officer as it investigated alleged violations of US anti-bribery laws. Walmart, which has run wholesale stores in India since 2009, has not opened a new one since October despite its stated plans to open eight in 2013. It has 20 such stores in India.

Narsey, who has taken charge, joined Walmart in May after serving as chairman and chief executive officer for Woolworths India, a unit of Woolworths, Australia's biggest supermarket chain.

vishal (dot) krishna (at) abp (dot) in