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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)