Wal-Mart to Go Slow in China--update

By Laurie Burkitt 

BEIJING-- Wal-Mart Stores Inc. is ratcheting down its ambitions in China, after years of watching its growth stymied by the challenge of quickly opening large numbers of stores across the country. The lightning-fast surge in e-commerce and its own missteps have also given the retailer pause.

"We'll grow, but our goal is not to be the biggest retailer in China. Our goal is to be the most trusted," said Chief Executive Doug McMillon at a news briefing in Beijing on Wednesday.

Wal-Mart plans to open 115 new stores across China by 2017, creating more than 30,000 jobs and bringing to 530 the number of stores the retailer has in the world's most populous country. However, that is only a fraction of the 5,187 it has in the U.S.

When Wal-Mart entered China in 1996, it aimed to mirror the U.S. expansion in China, opening thousands of stores across the country.

Wal-Mart wants to slow down to focus on quality, Mr. McMillon said, adding, "We're investing in the long term."

The company realized it was aiming to grow too fast in the country, said Raymond Bracy, a spokesman for Wal-Mart in China. Stores in some locations failed and had to be closed. "Now we want to get it right with greater success from day one when opening a store," he said.

The adjustment matters, experts say, because Wal-Mart has long viewed China's vast consumer market as important growth territory. The retailer is relying on international growth as U.S. sales rose a slim 0.5% last year, excluding newly opened stores.

Wal-Mart opened its first two stores in China in 1996. By 2010 it had 279 but then it slowed new openings. Under its current expansion plan, it isn't even attempting to double the 2010 number.

Industry watchers say the retailer likely would have expanded more rapidly across China if not for a mixture of its own missteps, such as choosing poor locations, bureaucratic red tape and a slowing economy.

Wal-Mart said in February that its fourth-quarter net sales in China fell 0.7% from a year earlier, and sales at stores open a year, a measure known as same-store sales, dropped 2.3%.

China is still is a key growth market and online expansion is critical, Mr. McMillon said, though he would rather see the company move slowly, building a solid foundation, than growing too quickly and making mistakes. Mr. McMillon said Wal-Mart has focused in the past year on centralizing its distribution, lowering costs and improving efficiency in China, moves that he said are paying off. Wal-Mart declined to provide financial figures to show the improvement and it doesn't break out revenue by country.

But experts say Wal-Mart has lost ground by moving too slowly and sticking too closely to its U.S. strategy in fast-paced China.

Wal-Mart needs to bulk up faster, said Richard McKenzie, partner at consultancy OC&C Strategy Consultants. In the U.S., building scale has given Wal-Mart power to pay its suppliers less for shampoo and other products because it is buying in bulk. "Scale is very important in grocery retail," said Mr. McKenzie.

Some industry watchers also criticize Wal-Mart for stores in China that appear rundown compared with rivals. According to market-research firm Euromonitor, China Resources Enterprise Ltd., which has thousands of stores across China, has overtaken Wal-Mart in market share with outlets similar to Whole Foods' upscale stores in the U.S.

Wal-Mart said Wednesday it would invest 370 million yuan ($59.6 million) to remodel 50 of its stores this year.

Executives at Wal-Mart say the Chinese marketplace is a moving target, as in-store sales growth dwindles for most retailers and formidable Chinese online rivals emerge.

To be sure, Wal-Mart was one of the first retailers--foreign and domestic--to set up online in China; in 2012 it acquired a majority stake in e-commerce site Yihaodian, which dominates milk sales online. However, Yihaodian is still tiny compared with e-commerce giant Alibaba Group Holding Ltd. and second-largest player JD.com. It accounts for a mere 1.4% of online transactions, while Alibaba holds a 61.4% share, according to market-research firm iResearch.

This week, Wal-Mart will be rolling out an app in China that enables shoppers to order goods on their phones and either pick them up in a store or have them delivered by Wal-Mart's own employees. But some of its rivals in China have already created ways for customers to order online and pick up at convenience stores near their homes.

Mr. McMillon, who is known for being digitally savvy, said there is "room for improvement" online.

Wal-Mart previously has said that the Chinese government's austerity campaign has pinched sales, with efforts to stamp out waste in government and at state-owned firms lowering demand for items tied to China's gift-giving culture, such as alcohol, gift cards and moon cakes.

Sarah Nassauer contributed to this article.

Write to Laurie Burkitt at [e-mail]

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