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Wal-Mart considers new strategymarket
World’s largest retailer plans further expansion in China in bid to catch up with more successful rivals
Li Jian
Shanghai_Delta
page03 2006-8-4
As Wal-Mart is about to pull out of Germany, it may be time for the company to adjust its strategies in China to avoid another embarrassment.
Days ago, the world's largest retailer, which has long barred labour unions in its stores all over the world, halted its hostility toward the All-China Federation of Trade Unions and agreed to its first trade union.
Market analysts said Wal-Mart's compromise showed its determination to crack the China market and forecast bigger moves by the company toward further expansion.
"It is time for Wal-Mart to make some changes before it is too late," said Helen Huang, an analyst with Shanghai-based Goldenapple Consulting Co Ltd. "The first thing it needs to solve is to increase its chain stores."
In the past 10 years, since it entered China in 1996, the world's largest retailer has opened only 56 stores in China including 51 Wal-Mart Supercentres, three Sam's Clubs and two community stores, far fewer than its rivals Carrefour, Metro and even the local retailers Huanlian and Lianhua.
Thus, its smaller presence in China led to its inability to compete against established market giants.
"Wal-Mart intends to open 18 to 20 new stores throughout the country in 2006," Gao Jing, public relations manager of Wal-Mart China, said in a recent interview with China Business Weekly.
French retailer Carrefour, which leads Wal-Mart in the market with a total of 73 stores and sales of more than 20 billion yuan (US2.4 billion) in 2005, will open around 20 new hypermarkets this year.
In China's largest cities, Wal-Mart is far behind. Last year, the retailer opened its first outlets in Shanghai, the hub crowded with more than 100 supermarkets owned by Carrefour,Metro and E-Mart and around 1,200 smaller chain stores owned by local companies such as Shanghai Brilliance Co Ltd.
An 18,000-square-metre outlet in the western district of Pudong is one of three Wal-Mart stores planned for Shanghai.
"Wal-Mart's huge hypermarkets apparently do not fit in Shanghai, where land is so scarce," said Michael Hexter, an analyst with China Bizbeat Information Centre, a consumer consulting firm based in Shanghai.
"Wal-Mart's entry into the Shanghai market will not bring big change in the market," said Hexter.
In smaller cities, Wal-Mart also finds it hard to reach consumers with the right products.
First, distribution and logistics networks in the smaller cities are underdeveloped and likely will remain so for several years. Also, consumers in smaller cities have lower incomes and cannot afford the bountiful products provided by Wal-Mart.
A logistical problem created by its own design is that many Wal-Mart stores in China are located in the suburban areas. For most Chinese customers who do not own cars, Wal-Marts are hard to access even though they may provide much lower prices than other chain stores.
High fuel prices will be another factor to sap the buying power of Chinese who own cars.
Even in pricing, Wal-Mart does not have many advantages over Carrefour and other Wal-Mart considers new strategymarket leaders.
Wal-Marts usually buy products directly from local manufacturers to control costs, but in China manufacturers are scattered all over the country and transportation infrastructures and logistics service still remain underdeveloped.
Despite an early entry into China's market, Wal-Mart failed to develop loyalty in customers.
"Wal-Mart's Sam's Club confuses Chinese customers by requiring membership," said Wang Xian, 25, a computer engineer. "Why should I have a membership just to buy some eggs?"
Although Wal-Mart is lagging behind in the China market, analysts said it is not a demanding task for the company to catch up with its rivals.
"Their global marketing experience and supply-chain management are second to no one in China, let alone its bountiful funds that could acquire any chain-stores in China overnight," said Hexter. |
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