How Walmart Will Fight to be Successful in China

Walter Loeb, Contributor

Walmart has been aggressively opening stores in China since 1996. Sales last year were around $10 Billion. Over the years, Walmart management carefully cultivated influential relationships and donated RMB77 million to local charities.  This helped Walmart gain acceptance and smoothed the way for the opening of some superstores and Sam’s Club units. There are now about 385 stores and 10 Clubs in China. Today in China, supermarkets and hypermarkets command more than 80% of the Chinese market. This includes international players such as Walmart, Carrefour and Tesco; as well as Chinese operators including the Beijing Hoalian Group and others.

While in Beijing, Mike Duke, chairman and CEO of Walmart, recently announced that over the next three years the company will be opening 110 new supercenters and Sam’s clubs and closing 15 to 30 older units. Many other existing stores are slated for renovation over the three years.  New store locations will be focused on smaller cities.  At the same time, Walmart will be stocking all stores with upgraded merchandise. This says a great deal about what is happening with the Chinese consumer.  Walmart stores are currently selling cheap merchandise but the Chinese consumer wants something better, so Walmart must respond or risk losing share.  In addition Walmart is opening new distribution facilities in China–the need for more rapid distribution will ensure fresher food and produce—again pointing to the desire for better quality among Walmart’s Chinese customers.  Customers who are increasingly discerning and willing to spend time inspecting products, before buying, to ensure freshness.

Walmart has pledged to adapt to the rapid consumer market changes by making adjustments to its current operations and becoming more innovative; this includes putting a greater emphasis on better quality fresh food and groceries.  By October of next year all Walmart stores in China will have access to fresh and dry distribution centers with quality controls and compliance oversight. Greg Foran, President and CEO of Walmart China, stated that the company will improve operations and customer experience; establish best-in class food safety practices; and eliminate costs, in order to build an even stronger business. This is so typical of Walmart–speak publicly about all the positive changes while hiding the fact that it has been treating China like a third world country despite the explosive growth and urbanization that is taking place

As part of the expansion plans, Walmart has pledged to create 19,000 jobs in China by opening new stores and distribution facilities. I guess this will help to balance what is happening on the supply side in the United States. Walmart is working hard to meet its pledge of manufacturing $50 Billion of products over the next 10 years in the United States. That means creating jobs in the United States at the cost of worldwide suppliers–especially China. The creation of jobs through new stores and distribution centers in China will offset some of the job losses the new U.S. sourcing effort will cause. Already shoe manufacturer Elan-Polo will produce injection-molded shoes in Georgia creating 250 new jobs, and another 100 jobs will be created by the manufacturing of glassware and window covering—goods that would previously come from China.

Walmart’s management has been on a steep learning curve in the International arena. It has abandoned its presence in Germany and India, and has revised its presence in China. It is likely that in other countries the company will also have to change its point of view and its operations as consumers become more sophisticated and International and local competition becomes stiffer.