US retail giant Wal-Mart appears to be rethinking its "pile it
high, sell it cheap" philosophy at least in China with the
billion-dollar purchase of a community supermarket chain. According
to reports Wal-Mart has outbid French-owned Carrefour, Britain's
Tesco and the mainland's Hualian for the Taiwan-based Trust-Mart
supermarket chain.
Covering 108 stores, with 30,000 employees across more than 20
provinces and annual sales of around 10 billion yuan (US$1.27
billion), the Trust-Mart purchase would more than double Wal-Mart's
presence in China.
The move shows a startling commitment to a market in which the
company has so far failed to flourish especially considering its
withdrawal from South Korea and Germany following disappointing
sales.
According to the New York Times the company, which
currently has 66 stores in China, expects the deal to be closed by
the end of the year but it still requires approval from the Chinese
government.
The company, the largest retailer in the US, was yesterday
tight-lipped about their expansion plans. Jonathan Dong, Wal-Mart
China director of public relations, was unable to comment on the
issue but did say, "As long as it's good for our business
development in China and good for us to better serve customers we
would not rule out any kind of cooperation."
According to Dong the company's only current concrete plans are
for 18-20 new stores in China this year. It has opened 10
already.
A sign the company was willing to persevere with its China
operations came in July when, for the first time anywhere in the
world, it agreed to allow staff in China to form a trade union.
Trust-Mart officials refused to comment on the situation but if
the deal goes ahead the acquisition of a chain of local
supermarkets represents a radical new departure for Wal-Mart.
Success for them in the US is based on bulk selling at knock-down
prices from out-of-town warehouse-sized stores.
Reliant on mass purchasing from suppliers, tight stock control
and logistics run with military precision the US model has failed
so far to translate its success into the Chinese market.
Despite their decade-long Chinese presence Wal-Mart has yet to
become one of the nation's top 10 retailers. They had a turnover of
6.2 billion yuan (US$784.4 million) in the first half of this year
compared to Carrefour's 11.9 billion yuan (US$1.5 billion) over the
same period.
The Trust-Mart takeover would put Wal-Mart within touching
distance of the French Carrefour business, which is the leading
foreign-owned retailer in China. In terms of the number of stores
Carrefour has more than 200 nationwide and has been moving itself
closer to residential communities where Chinese consumers prefer to
shop.
Although declining to comment on Wal-Mart's reported takeover,
Yang Qingsong, information center director of the China Chain Store
and Franchise Association, previously told China Daily
that it was the ability of Carrefour stores around the country to
tweak their stock depending on local preferences that had given
them the edge over Wal-Mart.
The French store had previously attempted a Wal-Mart style
national purchasing and distribution policy, he said, but it had
failed because of different regional tastes and the logistical
difficulties of moving vast quantities of stock around the
country.
According to Wal-Mart's own figures Chinese shoppers spend an
average of US$4 at a store compared to US customers' average spend
of US$20. Chinese shoppers, however, visit stores more often in
search of fresh produce. Wal-Mart obviously hopes to capitalize on
this trend with its reported move into community-based stores.
Feng Zhao, the 28-year-old manager of an exhibition company in
Shanghai, believed the move made sense for the company. "I’ve never
been to Wal-Mart and don't think I would go because it's too far
away from my home," he said. "There is a Trust-Mart near my home
and I go there all the time for household items but I still go to
the traditional market for fresh fruit and vegetables."
Graphic designer Jiang Qin, 33, another Shanghai resident,
suggested the combination of Trust-Mart's convenient location with
Wal-Mart's product range could be a winner. "Trust-Mart has fewer
products than other stores while most products are at the middle or
low end of the scale and it's not really cheap either," she said.
"If you could get the range of products stocked at Wal-Mart in
Trust-Mart stores I'd definitely shop there."
(China Daily October 18, 2006)