When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

China

Walmart Plans To Replicate U.S. Small-Town Strategy In China

The American retailer already has a presence in China, but its aim now is to develop shopping malls in smaller Chinese cities, where its community supermarkets can serve as anchors.

Shanghai's Walmart Superstore
Shanghai's Walmart Superstore
Tang Xiangyang

BEIJING — Walmart is about to make a move in China again. The American retail giant is envisioning developing commercial real estate, though the number and choice of sites have yet to be determined.

Walmart's aiming at small community shopping centers in the so-called third- and forth-tier cities. It’s a strategy much different from the Inter Ikea Centre Group or the Wanda Group’s large shopping malls whose parking lots often accommodate thousands of cars. It means that Walmart China, with its supermarkets, its “Sam’s Club” members-only warehouse, and its “No. 1” online shopping site, is developing a new strategy in China. “Walmart is a well-accepted brand at the local government level,” says Chen Liping, director of the Institute of Business Administration at the Capital Normal University. “It’s not to be denied that it has some chance of being successful.”

Whereas Walmart is renowned in China for its first-tier city supermarkets, what it does best at home in the United States are the small-scale community-based stores. The fact that Walmart’s recent location scouts have chosen several less well-known cities in Guangdong Province obviously demonstrates that the company intends to copy its successful experience at home by obtaining low-price land or leases to achieve low-cost expansion.

Walmart’s development move is a smart strategy, says Wang Rong, vice president of Roland Berger Strategy Consultants’ Greater China office. Because the anchors at these shopping centers will be the Walmart supermarkets and Sam’s Club membership warehouses, this Walmart won’t face much difficulty in recruiting businesses.

Apart from luring retailers as well as food and beverage stores, Walmart supermarkets and Sam’s Clubs will no doubt bring considerable shoppers to these malls. Though Walmart has not published its Chinese market data, the American giant’s global reach has expanded significantly over the past decade, according to a stock analysis startup called Trefis. All but its newly opened Suzhou store are profitable. In terms of sales, Walmart’s first Chinese warehouse store in Shenzhen, which opened in 1996, became the company’s global top shop a few years ago. “Sam’s Clubs have strong shopping mall properties,” says Chen Liping.

[rebelmouse-image 27087444 alt="""" original_size="500x375" expand=1]

In Beijing — Photo: Fruitnet.com

In fact, relying on anchor stores to stimulate the flow of people is not a strategy unique to Walmart. For instance, housewares store Ikea will be among four anchor stores when the Inter Ikea Centre Group opens several shopping malls in three Chinese cities — including Beijing — between 2014 and 2015. The three others will be the French supermarket Auchan, Suning Appliance, and Jinyi Cinema, one of China’s top five theater firms.

The challenges

Despite the outside world’s optimism about Walmart’s move, the company, in clear contrast to the Inter Ikea Centre Group, has been very discreet about its expansion. “We are very cautious about this project. We have yet to reveal more information,” its officials say.

This circumspection is no doubt driven by not-very-optimistic market conditions. As many as 150 shopping centers have been opened or are opening this year in major cites such as Beijing, Shanghai and Guangzhou, according to a July report from Jones Lang LaSalle, a real estate services and investment management company. Meanwhile, a report by the market research firm Ipsos covering the same period showed that there were already 2,897 shopping centers across China at the end of 2012.

As a matter of fact, for the first half of 2013 China’s commercial real estate investment amounted to over 500 billion RMB ($82 billion), a 26% increase over the same period the year before. This rate far surpasses China’s growth in GDP. Intense competition among these centers is inevitable.

Another potential problem is that e-commerce is challenging conventional malls. As another Ipsos survey showed, nearly half of respondents said that they’d increasingly shop online whereas only 11% said that they’d be visiting shopping malls more frequently.

As a retailing giant that has nearly 400 stores and 17 years of existence in China, Walmart certainly isn’t unaware of the grim situation that China’s shopping centers are facing. That it chooses to attack the small-scale community projects in the smaller cities is precisely because it aims to succeed by differentiating itself. In its plan, the mall surfaces, the number of tenants and shop types are all to be matched to the size of the local community.

Nevertheless, even Chen Liping, who is relatively optimistic about Walmart’s ambition, says that because of China’s rapidly aging population, shopping malls are also prematurely aging in China. The primary consumers visiting foreign retailers such as Walmart and Carrefour are entering middle to old age while these malls fail to find favor with the younger generations. “The post-1980s and post-1990s generation prefer shopping online or at the local shops which better understand their psychology,” Chen says.

The remarks that foreign retailers are being defeated by Chinese own marks are not without foundation. The already-mentioned recent take-over of Chai Tai Lotus shops by Wumart and the mergers of Tesco and China Resources Enterprise show this. Tesco which once owned 139 stores and which has been in China over 9 years now holds only a 20% share in the joint venture and is effectively quitting this market.

So far, AEON Group, the Japanese retailing and financial services firm is the most successful foreign retailer in China’s commercial real estate market. The Aeon Malls use a low-price strategy, refined membership management, good services and has won a good reputation.

In Chen Liping’s opinion, Walmart’s brand efficiency is relatively stronger. Its 1.1 million Sam’s Club members’ data can also provide some help to the shopping mall project. However, whether or not Walmart will be able to sell “quality and inexpensive” goods remains the most critical point for success of these centers.

You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!

Greenpeace activists project the words “Risky & unnecessary” on the cooling tower of the Isar 2 nuclear power plant in Essenbach, Germany. The German government has delayed its long planned final phase-out of nuclear plants to keep as emergency reserve into 2023 as Russia threatens to cut off all gas supplies.

Anne-Sophie Goninet, Lisa Berdet, Chloé Touchard and Lila Paulou

👋 Ushé-ushé!*

Welcome to Tuesday, where Ukraine continues to reconquer territory, fresh clashes on the Armenia-Azerbaijan border leave at least 49 dead and France says adieu to two 20th-century titans of the visual arts. Meanwhile, business daily Les Echos draws a profile of Vladimir Potanin, one of Russia's top 10 billionaires who continues to grow his business despite Western sanctions.

[*Kanuri, Nigeria, Niger, Chad and Cameroon]

Keep reading...Show less

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in
Writing contest - My pandemic story
THE LATEST
FOCUS
TRENDING TOPICS

Central to the tragic absurdity of this war is the question of language. Vladimir Putin has repeated that protecting ethnic Russians and the Russian-speaking populations of Ukraine was a driving motivation for his invasion.

Yet one month on, a quick look at the map shows that many of the worst-hit cities are those where Russian is the predominant language: Kharkiv, Odesa, Kherson.

Watch VideoShow less
MOST READ