Wal-Mart Stores Inc. (WMT), the world’s largest retailer, is overhauling purchasing operations in China and will close more than 20 underperforming stores there over the next year to improve returns from the Asian nation.
The company is “restructuring” parts of its China business with changes that include new management structures and more efficient purchasing offices to curb costs, it said in a statement today. The retailer continues to add new stores in China even as it shutters less profitable ones.
The U.S. retailer faces stiff competition on the mainland from regional rivals such as Sun Art Retail Group Ltd. (6808) and China Resources Enterprise Ltd. (291), who have tailored promotions and shopping experiences to Chinese tastes. While Wal-Mart China’s net sales excluding an online grocer business rose 6.3 percent in the second quarter from a year earlier, customer traffic declined 6.8 percent, according to a Bloomberg transcript of the company’s earnings conference call in August.
Even as competition has risen in China, economic growth has slowed with gross domestic product expanding 7.5 percent in the second quarter from a year earlier, the second straight deceleration.
Wal-Mart will close more than 20 China stores representing about 2.5 percent of its total sales volume there over the next year, Scott Price, its Asia chief said in a conference call on Oct. 15. The stores did not have ideal locations and layouts, Price said.
The retailer said last October it plans to open more than 100 new stores over the next three years in the Asian nation.
Wal-Mart is overhauling the China business as it faces troubles in India, where it recently ended a six-year local partnership with Bharti Enterprises Pvt., a setback for its plans to set up retail stores in that country.
The company has consolidated 29 buying offices into eight this year, Price said on the call. The company is further “consolidating the buying function,” the chain said in today’s statement today, without providing specific details.
Affected employees in China’s merchandising unit will be offered positions of similar levels in various other divisions in China and the company will compensate staff that choose to leave, according to today’s statement. It did not immediately respond to questions on the number of staff affected.
Hypermarket chains are consolidating on the mainland amid greater competition. Tesco Plc (TSCO), the largest U.K. retailer, said in October it will form a joint venture and merge its more than 130 stores in China with the Hong Kong-listed China Resources Enterprise Ltd.
Sun Art is China’s largest hypermarket operator, with a 14 percent share of the industry last year, according to Euromonitor International. Wal-Mart and China Resources are tied for second place with an 11 percent share each in 2012.
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