Wal-Mart to Accelerate China Expansion With 110 New Stores
Wal-Mart Stores Inc. (WMT), the world’s largest retailer, plans to add as many as 110 stores over three years in China, while shutting some outlets and remodeling dozens more as it seeks to overhaul its business there.
The Bentonville, Arkansas-based company plans to open the new stores from 2014 to 2016 in the world’s second-largest economy, it said in a statement today. The retailer expects to shutter up to 30 under-performing outlets over the next 18 months, Greg Foran, its China chief, said at a media briefing in Beijing today.
Wal-Mart is closing less profitable stores and revamping business units in China amid increasing competition from regional rivals Sun Art Retail Group Ltd. (6808) and China Resources Enterprise Ltd. (291) The U.S. retailer has been battling setbacks in emerging markets including the end of a six-year partnership in India with local billionaire Sunil Mittal.
“China presents one of the biggest opportunities for us around the world to grow our stores and clubs, so its really important,” Doug McMillon, president of Wal-Mart’s international business, said today in an interview with Bloomberg Television.
The retailer in August cut its annual profit forecast after U.S. shoppers’ reluctance to buy more than the bare necessities hurt second-quarter sales. International operations will be an area of growth for Wal-Mart, Chief Executive Officer Mike Duke said at the briefing. Duke was among international executives who met with Chinese President Xi Jinping in China this week.
Wal-Mart faces several hurdles in China including intense competition from local chains and a lack of scale that makes it harder to offer lower prices than wet markets, said Shaun Rein, Shanghai-based managing director at China Market Research Group. “They haven’t been as quick to react to competition and local players are able to cater to customers’ preferences faster than Wal-Mart.”
Sun Art is China’s largest hypermarket operator, with a 14 percent share of the 574 billion yuan ($94 billion) industry last year, according to Euromonitor International. Wal-Mart and China Resources were tied for second place with an 11 percent share each in 2012.
China’s hypermarket industry is going through a wave of consolidation. Tesco Plc (TSCO), the largest U.K. retailer, said in October it would pay $558 million to merge its more than 130 stores in China into a joint venture with Hong Kong-listed China Resources.
Wal-Mart plans to ramp up expansion in smaller cities outside Beijing and Shanghai. The company is also investing in distribution and will add a new center in the Northeastern city of Shenyang next month. It is also remodeling 45 China stores this year, with more planned over the next two years.
“We have supercenters and we have Sam’s Club; we’ll be investing in both formats, as well as in distribution areas to help us improve in areas such as fresh food,” said McMillon.
The company is hiring in China and expects to create about 19,000 jobs.
In India, Wal-Mart this month agreed to buy the stake held by Mittal’s Bharti Enterprises Pvt. in their joint venture, which runs wholesale stores. Foreign companies need a local partner to run retail chains in India and Wal-Mart will have to find a new partner to open outlets.
The company is still interested in India’s retail market and is in discussion with the government, Asia head Scott Price said at the press conference.
Wal-Mart’s net sales in China, excluding an online grocer business, rose 6.3 percent in the second quarter from a year earlier, while customer traffic declined 6.8 percent, according to a Bloomberg transcript of the company’s earnings conference call.
The big-box retailer named two new managers to its China team, according to an internal memo obtained by Bloomberg News last week. Adrian Blake will join as senior vice president of business development for the region, and Rob Bray, currently senior vice president of real estate design, construction and store planning for Wal-Mart U.S., will become senior vice president of real estate in China, according to the memo.
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