Wal-Mart makes moves to expand its stores in China

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Last updated at: (Beijing Time) Tuesday, January 06, 2004

Wal-Mart makes moves to expand its stores in China

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Having introduced a new shopping style to Chinese consumers in several major cities, Wal-Mart, the US-based leading global chain retailer, is stepping up its expansion plan in 2004 as the opening of the retail market under the World Trade Organization (WTO) commitments gathers momentum.

Wal-Mart stores in China specialize in selling high volumes of merchandise at discount prices. The concept is common in the US, but is still a novelty in China.

For that reason, it has allowed Wal-Mart to sidestep the fierce competition among the large domestic and joint-venture supermarket chains, including Wumei, Makro and Carrefour.

In an exclusive interview with China Daily, Bill Zhang, general manager of Beijing Wal-Mart Sam's Club, says that his company's target consumer groups are small- to medium-sized companies and car-owners with above-average income.

"We are after a segment of the market that is different from that of our competitors,'' Zhang says. "Their supermarkets are located in the city because they are in the mass-consumer market,'' he adds.

Wal-Mart has adopted a bidding system to ensure that it buys only from domestic suppliers quoting the lowest prices.

Wu Jianzhong, vice-president of Wumei, says that Wal-Mart's clear market orientation is helping it to gain a foothold in the retail business in the country.

Encouraged by the initial success of its stores in Shenzhen, Beijing and 13 other cities, Wal-Mart is planning to vastly increase its outlets thoughout the nation this year and beyond to establish a strong presence before the full opening of the retail market under WTO agreements.

China's commitments to the WTO call for, among other things, the lifting of regional limitations on foreign chain retail operators this year. From 2007, all restrictions on foreign retailers will be removed and China's chain retail market will be fully liberalized.

Figures from the China Chain Store & Franchise Association show the combined sales volume of commercial retailers in the country amounted to 115.17 billion yuan (US$13.88 billion) in 2002, 15.1 per cent up from a year before.

The growth rate of total sales of all domestic as well as foreign chain stores and supermarkets averaged about 20 per cent on a year-to-year basis in the past five years.

Sources say that Wal-Mart plans to open another 50 stores within three to five years, with the total rising to 100, about the same number of China outlets as France-based retail giant Carrefour.

In Beijing, it plans two more hypermarkets in the latter half of next year.

John Xu, director of external affairs for Wal-Mart China, says that a new hypermarket would be opened in Tianjin by the end of this year.

Sources close to the Shanghai Municipal Government have said that Wal-Mart's joint venture with China International Trust & Investment Corp was approved by the Ministry of Commerce in November, paving the way for further expansion in the prosperous Yangtze River Delta region.

The company plans to open three chain stores in Shanghai soon with a total investment of US$18 million and registered capital of US$7.2 million.

To date, Wal-Mart has opened 31 retail outlets in 15 cities around the nation.

In addition to Sam's Club ?a members-only warehouse store ?in Beijing, Wal-mart has opened similar outlets in Shenzhen, Fuzhou, Kunming and Changchun. It also operates two community stores in Shenzhen.

Zhang says that business at Beijing's Sam's Club has grown much faster than expected. Opened in July, the Beijing entity has recruited more than 100,000 members, including many small to medium-sized businesses. The membership fee is 150 yuan (US$18.07) a year.

To further consolidate its business in China, Wal-Mart has established purchasing centres in Shenzhen and Dalian to streamline the supply chain; and four distribution centres in Dongguan, Fuzhou, Shanghai and Tianjin to provide logistics support.

The Ministry of Commerce is reportedly revising its regulations to provide clearer guidelines for foreign retail operators; and the draft of the revised rules and regulations is said to have been sent to the large foreign retailers, including Wal-Mart and Carrefour, before hearings begin.

Sources predict that the new rules are unlikely to have much of an impact on Wal-Mart.

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