Personal Finance

Walmart Buys Another E-Commerce Player for $225 Million

The interior of a Walmart store in Mexico.

Walmart (NYSE: WMT) recently announced the acquisition of Cornershop -- an online marketplace for crowdsourced deliveries from supermarkets, pharmacies, and specialty food retailers in Mexico and Chile -- for $225 million.

Walmart calls the acquisition "an important step forward in accelerating the company's omnichannel capabilities and growth in Latin America" and notes that "Cornershop will remain an open platform that will continue to deliver from a variety of retailers."

The interior of a Walmart store in Mexico.

Image source: Walmart.

Another piece of Walmart's international expansion

Walmart has been aggressively expanding abroad into higher-growth markets to offset the slower growth of its domestic business amid tougher competition from (NASDAQ: AMZN) . Until now, Walmart mostly focused on Asian markets like China, India, and Japan.

In China, where it operates 426 stores, Walmart bought a 12% stake in (NASDAQ: JD) , the country's second-largest e-commerce player after Alibaba . The two companies recently co-invested $500 million in Chinese online grocery delivery company Dada-JD Daojia.

In India, Walmart operates just 21 Best Price stores. However, it aggressively boosted its online presence there earlier this year by buying a controlling stake in Flipkart, the country's No. 2 e-commerce marketplace behind Amazon. That $16 billion acquisition is expected to weigh down Walmart's earnings over the next two years.

In Japan, Walmart has launched a new strategic alliance with Rakuten , the country's second-largest e-commerce player after Amazon. That partnership allows Walmart to sell e-books, audiobooks, and Rakuten's Kobo e-readers at its stores. It also includes a joint venture between Rakuten and Walmart's Japanese subsidiary Seiyu for a new online grocery service.

How do Mexico and Chile fit into this strategy?

Walmart currently operates in nine Latin American countries -- Chile, Argentina, Brazil, and the six-country Walmex unit, which includes Mexico, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

Walmart's Bodega Aurrera banner in Mexico.

Image source: Walmart.

In Mexico, Walmart operates 2,398 stores under the Bodega Aurrera, Superama, Walmart, and Sam's Club banners. In Chile, it operates 383 stores under the Superbodega Acuenta, Ekono, Lider, and Central Mayorista banners.

That combined store count equals 44% of Walmart's international locations, and 24% of its total retail units. Therefore, those two countries (particularly Mexico) can be considered growth engines of its international business, which grew its revenue 4% year over year last quarter (3.1% on a constant currency basis) and accounted for 23% of the company's top line.

As of 2016, Chile had an internet penetration rate of 78%, while Mexico had a penetration rate of just 45%. Both rates were lower than the United States' penetration rate of 89% -- which indicates that both markets are fertile ground for e-commerce investments.

Earlier this year, Philip Behn, senior VP of e-commerce at Walmex, stated that the unit was "focusing strongly on Mexico ... where the biggest e-commerce war in the region" was happening. Behn hinted that Walmart would significantly boost its e-commerce investments across Central America -- and its takeover of Cornershop certainly fits that strategy.

Walmart previously introduced Alphabet 's Google Shopping to Chile, which reportedly boosted sales there by more than 10%. Cornershop uses a similar approach as Google Shopping, by tethering brick-and-mortar retailers to its online ecosystem instead of building a first-party marketplace.

But will these investments pay off?

Walmart has spent a lot of money on its overseas acquisitions and partnerships, but these investments are necessary to counter e-commerce behemoths like Amazon and Alibaba, which are aggressively expanding beyond their home markets.

The Cornershop acquisition represents a smaller investment than Walmart's previous investment in and its takeover of Flipkart, so it should attract less scrutiny from investors. However, it tells us that Walmart is still expanding its international e-commerce ecosystem in markets beyond China, India, and Japan.

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