Walmart Seeks China Growth in Small Cities

Since 2007 Walmart has quadrupled the number of stores in China. It plans to continue its rapid growth by focusing new stores in third-, fourth- and fifth-tier cities.

“So far, 80 percent of our Chinese stores are in second-, third- or even fourth-tier cities,” said Ed Chan, Walmart China’s president and CEO. “I believe the lower-tier cities will see faster economic development than first-tier ones. So, Walmart China will increase its investment in lower-tier cities.”

In 2007 global retail leader Walmart, which had entered the China market in 1996, had 70 stores and 30,000 employees there. After four years of double-digit growth it has more than 300 stores and 95,000 employees in China. Chan’s success in growing Walmart’s China operations was especially important because in 2006 it had thrown up its hands and sold out in S. Korea and Germany.

China’s importance is obvious to Walmart. Retail sales are expected to grow 14.5 percent a year to $5 trillion by 2016 thanks to the rapid urbanization of its 1.3 billion population coupled with the government’s push to boost domestic consumption as the best source of sustainable economic development.

At the moment China business contributes less than 10 percent to Walmart’s profits outside the U.S., according to Chan. But he is determined to see China, the world’s fastest-growing major retail market, become Walmart’s biggest as well.

Walmart’s global net sales reached $108.6 billion in the second quarter of 2011, a 5.5 percent increase from $103.0 billion in the same period last year. The net sales of Walmart International, the businesses outside the U.S., increased by 16.2 percent to $30.1 billion due in part to mergers and acquisitions.

In 2007 Walmart paid $264 million for a 35 percent stake in Trust-Mart Group, a leading chain retailers in southern China. A succession of departures by three top Walmart China executives this June was seen as a symptom of the firms struggles to find a profitable China business model as well as the pressures caused by having overpaid for Trust-Mart to satisfy its desire for rapid growth.

In 2005, the most recent year for which figures are available, Walmart had about $1.3 billion in China sales, trailing Trust-Mart’s $1.7 billion revenues, according to the China Chain Store and Franchise Association.

As of August 5 Walmart was operating 346 supermarkets and six Sam’s Clubs in 128 cities in China.

In recent years Walmart has had to compete with increasingly sophisticated Chinese retail conglomerates like China Resources Retail Group, Shanghai Brilliance Group and Lianhua Supermarkets, as well as international players like the French Carrefour Group, the UK’s Tesco and German retailer Metro AG.

Taiwan-headquartered RT-Mart is the mainland’s biggest retailer, with a 6.3 percent market share in the year ending June 17, according to British research firm Kantar Worldpanel.

Walmart is working with e-commerce firms to invest in China’s booming online retail sector. It reached an agreement with the Shanghai municipal government to establish an e-commerce office to oversee Walmart’s online retail operations in China. Walmart and the Shanghai government will work together to train e-commerce personnel and speed the development of online retailing in China.

“The scale of online sales in China is expanding rapidly and is projected to match US online sales in the next few years,” said Wan Ling Martello, executive vice-president of global e-commerce for emerging markets at Walmart.

China had 161 million online shoppers by the end of last year, according to the China Internet Network Information Center. Online sales will reach $159.4 billion by 2015, up from $48.8 billion in 2010, according to a Forrester Research forecast.

Net sales in 14 developing economies are expected to make up 26.1 percent of the world’s retail industry, according to Daily Finance.com. Walmart International is forecast to reach 4,557 stores this year, from 2,733 in 2007, a growth of 360 stores a year.