US retail giant Wal-Mart appears to be rethinking its pile it
high, sell it cheap philosophy in China at least 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 own Hualian, for
Trust-Mart supermarket chain, based in Taiwan Province.
Covering 108 stores and 30,000 employees across more than 20
provinces, and with annual sales of around 10 billion yuan (US$1.3
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 Korean and German markets due to
disappointing sales.
According to the New York Times, Wal-Mart, 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 United States, was
yesterday tight-lipped about its rumoured expansion.
Jonathan Dong, Wal-Mart China director of public relations, said
he could not comment on the issue, but added: "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
co-operation."
According to Dong, Wal-Mart's only current concrete plans are
for 18-20 new stores in China this year, with 10 already
opened.
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 direction for Wal-Mart, which
based its US success on bulk selling at knock-down prices from
out-of-town warehouse-sized stores.
Reliant on mass purchasing from suppliers, obsessive control of
inventories and logistics systems run with military precision, the
US model has failed to translate its success into the Chinese
market.
Despite a decade-long presence in China, Wal-Mart has yet to
become one of the nation's top 10 retailers, with turnover of 6.2
billion yuan (US$785 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 Carrefour, the leading foreign-owned retailer in China,
in terms of number of stores the French chain has more than 200
stores nationwide, as well as moving itself closer to the
residential communities where Chinese consumers prefer to shop.
Although declining to comment on Wal-Mart's reported takeover,
Yang Qingsong, information centre 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 the store, compared to US customers' average
spend of US$20.
Chinese shoppers, however, visit stores more often in search of
fresh produce, a trend Wal-Mart hopes to capitalize on 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 US company.
"I have 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
products, 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 at Trust-Mart stores, I'd definitely
shop there."
(Xinhua News Agency October 16, 2006)