China Consumer

Going hyper

Walmart’s new Chinese hypermarket strategy

A long way from Bentonville

Visit a Walmart store in China, and you could well find pig intestines and live frogs next to the special-offer plasma TV screens. The indigenous delicacies are hardly staples at corporate headquarters in Bentonville, Arkansas.

The world’s largest retailer first began trading in China in 1996 with a Walmart Supercentre and a Sam’s Club in Shenzhen. So it has had time learn that localisation is key to cracking the world’s most populous country.

Sometimes it has had to find out the hard way. One early error: attempting to sell dead fish to a society that values freshness in its food purchases. Carrefour sold live fish in tanks from the outset, analysts say.

But today 95% of the products Walmart carries in its outlets are local brands. The company now operates about 180 Chinese stores and another 104 Trust-Mart stores, a chain acquired in 2007.

Walmart is not the largest retailer in China. The Taiwanese-controlled RT-Mart is ahead of its multinational rival grabbing 10.7% of market share last year, or Rmb38.8 billion, says research firm Euromonitor. French retail giant Carrefour ranked second with 9.2% or Rmb33.5 billion, while Walmart came in third at Rmb31.2 billion, 8.6% of market share.

And it seems like competition is about to get tougher. RT-Mart recently announced plans to raise as much as $800 million in an initial public offering in Hong Kong to fuel expansion, says Bloomberg. Carrefour, too, said last month that it is accelerating its store openings in China.

Revenues are on the up, too. In the first five months of this year, total retail sales went up by 18.2% from the same period last year, says the National Bureau of Statistics.

To fend off the competition, Walmart is now developing a new hypermarket-format to target consumers in the countryside. According to the Southern Metropolis Daily, the concept – not yet confirmed byWalmart sources – will feature smaller stores in the 6,000-11,000 square metres range. The company’s signature Supercentres are usually almost twice as big. The majority of the new stores will open in relatively small third-and-fourth-tier cities.

Pushing into the hinterlands is the right decision as the larger cities are getting saturated, says Huang Huajun of Topbiz360.com, a retail news website.

Most of the local competition in the smaller cities will be family-run outfits, and less of a competitive challenge. Walmart can also take advantage of first-mover advantage as local spending power increases.

Where has Walmart had problems in China? The company’s low price strategy can backfire with some shoppers, who worry that cheaper goods are counterfeit or dangerous, says Shaun Rein, managing director of the China Market Research Group in Shanghai.

Offering “everyday low prices’’ may miss the mark with customers too, who are more likely to get excited when items go ‘on sale’, offering the lure of a bargain, says Manager’s Daily. The company also hasn’t been able to replicate its super-efficient logistics system in China because it still lacks scale.

Walmart is hoping that the new hypermarket format will work out, following a failed convenience store initiative last year. Walmart opened three convenience outlets – called Hui Xuan, or ‘smart choice’ in Chinese – in Shenzhen. If the venture proved successful,Walmart promised to open as many as 1,000 more stores around the country in five years.

“The three stores, which are roughly 300 square metres each, are aimed at providing service to local communities,” Vivi Mou, a company spokesperson, told the mainland media at the time.

However, Hui Xuan failed to live up to expectations. One of the three pilot stores has already closed, and the remaining two face closure as a result of poor sales.

China Business News blames the failure of Hui Xuan on Walmart’s penny-pinching culture: “To save costs, Hui Xuan is not open for 24 hours. And to save rent,Walmart chooses locations that are at the community’s outskirts or in buildings’ basements, so no one can find the store or be able to tell that it’s a Walmart.”


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