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On December 29， 2013， Wall-Mart closed its Kunshan supermarket secretly， which happened， according to Wal-Mart， after a comprehensive consideration of its performance.
Wal-Mart began to close underperforming outlets as of 2013. Last year， this U.S. chain retailer closed a dozen of outlets in China， which easily outnumbered other foreign chain retailers. It is known that Wal-Mart is going to close 15-30 outlets in China in the next two years. They account for 9% of the total number of outlets of Wal-Mart in China but only contribute 2% of its sales in this country.
But Wal-Mart was not simply retreating. It is now focusing on its distribution in the lesser cities of China. In the next three years， Wal-Mart is going to set up 110 new sites in China， including hypermarkets， Sam’s Club stores and delivery centers.
It is not hard to find out that WalMart is contracting its business in major cities of China while increasing its presence in the less important cities. When the entire retail industry is shrouded with depression， Wal-Mart’s actions showed its determination of reform in the Chinese market. In other words， Wal-Mart is re-shaping its outlet network， logistics system and purchasing system.
The Pain of Growing
It was once reported that the outlet of Wal-Mart in Kunshan performed well in the beginning， but when the number of competitors increased， its business began to decline.
The loss was said to be due to the unwarranted “promise”. Even though Wal-Mart held the banner of “Everyday Low Price”， its products， as consumers said， were not cheap at all. It does not have too many fresh products. Those factors gradually drove the consumers in Kunshan away from Wal-Mart.
It is not an independent case. Actually， this most profitable retailer in the world is always staggering in its development in China. Wal-Mart entered China in 1996 with Shenzhen as its first stop. At that time， Wal-Mart copied its U.S. pattern into China and set up a Wal-Mart supermarket as well as a Sam Club’s store in Shenzhen. Presently， Wal-Mart has Wal-Mart supermarket， Sam’s Club and Wal-Mart community stores in China.
In the years’ development in China， Wal-Mart failed to get its online and offline business acclimatized to the Chinese market. During the battle between the American experiences and the Chinese consumers’ habits， WalMart missed expected performance in this emerging market， which did not match its role as the biggest retailer in the world. To a certain degree， it is the plants in China that support the low-cost supply chain of Wal-Mart in the world， allowing it to become extremely deft in controlling the production procedures. But in return， when Wal-Mart tried to sell its things to Chinese consumers，
The Chinese market environment is the first factor to blame. Many people know that the Chinese retail market is filled with competition and is one of hardest markets in the world. Apart from confronting Carrefour， Tesco and Metro， Wal-Mart also needed to fight hand-to-hand with retailers from Japan， South Korea and Taiwan. In addition， a large number of Chinese local chain retailers are growing and competing in this land as well.
Many times， Wal-Mart’s products are known to be low in price. But in China， there are numerous small stores and vendors along the streets， provid- ing multiple choices for the consumers to buy cheap things. In addition， the slowed economic growth rate of China sabotaged the consumers’ ability to spend and further affected Wal-Mart’s business.
Apart from the environment， WalMart’ “unfamiliarity” in the Chinese market is also related to its scale of operation. By now， Wal-Mart had around 400 outlets in China， while Carrefour had 200 stores. These numbers are far from the number a matured and saturated market deserved and are also far different from the ones in the home countries of Wal-Mart and Carrefour. It is known that Wal-Mart has around 4，500 outlets in the U.S. whereas Carrefour had the same number of outlets in France. This means that these retailers are far from scale operation in China. The insufficient number of outlets leads to the dysfunction of the logistics system that Wal-Mart took pride in and greatly increased its cost.
In addition， Wal-Mart has to face a problem that is common for all foreign retailers in China – whether or not to have some local elements added in their stores. This means that foreign retailers have to make a choice between “followup standardized operating procedures”and “flexible operation”.
The strategy Wal-Mart followed in the previous few years is that the headquarters gave up a part of its decisionmaking rights and gave the outlets more autonomy. But in November 2012， WalMart integrated its 30 purchasing offices in China into eight regional offices. In October 2013， Wal-Mart also increased the centralization of purchasing with some small suppliers having been eliminated.
The frequent occurrence of food safety issues is an important reason for Wal-Mart to accelerate the “centralization of purchasing rights”. In September 2011， Wal-Mart’s three supermarkets in Chongqing were reported to “sell the ordinary chilled fresh pork in the name of green food”， for which Wal-Mart had to make an official apology. In December 2013， Wal-Mart’s outlet in Jinan was reported to “sell cheap fox meat under the color of cooked beef and donkey meat”. Once again Wal-Mart apologized for it. In January 2014， Wal-Mart was reported again to sell “non-qualified products”.
Obviously， the centralization of purchasing rights will apply strict policies and procedures to the system to ensure the product quality. However， the centralized management will impair the competitiveness of Wal-Mart in some cities.
“For Wal-Mart， the difficult part is how to get used to the Chinese market and handle well between the standard and flexibility，” said Ren Guoqiang， partner of Roland Berger Strategy Consultants. “As for the organizational structure， which part can see the eased control and how to decentralize the rights without causing any disturbance？ All these things need careful consideration.”
Apart from the operating pattern， Wal-Mart， as well as other foreign chain retailers， has to fight against other problems in China， such as the lack of qualified staff， unbalanced infrastructure and scarce in reliable cold chain delivery network.
The Structural Changes
In the year of 2013， the retail companies’ closing stores was one of the most heard reports in the media.
According to the Statistical Report about Major Chain Retailers’ Closing Stores in 2013， chain retailers （furniture and home appliance retailers excluded）closed 31 outlets in total in 2013. WalMart alone closed 14 outlets in China last year， taking the championship among all major foreign chain retailers. Tesco closed three outlets in China due to operating problems while Lotus closed two. The Chinese local chain retailers did not see better days as they closed 35 outlets last year.
Most of the closures of outlets happened because of the expired leasing contracts， business changes， weak profitability， strategic need， transformation and poor management. According to Ray Bracy， senior vice president of Wal-Mart China， Wal-Mart closed some outlets last year because of its fascination with expansion in the past. Under certain conditions， their attention to the expansion grew bigger than the efficiency.“We will no longer make that mistake，” he said. Greg Foran， president and CEO of WalMart China said that WalMart would run strict tests over the market conditions when setting up the 110 new outlets. Some underperforming stores need to be closed， which meets the requirements of the corporate management. It can also help Wal-Mart achieve better development in the Chinese market.
In Ren Guoqiang’s opinion， WalMart selective closure of stores is generally a right choice. “From the economic benefits， closing some underperforming outlets could move the scarce resources to outlets with better performances. This closure and transferal are very normal and nothing speculative can be found here，” he said. “In addition， the market in the major cities of China has already been saturated and the rents are increasing faster than expected. The labor cost is rocketing up too. All those factors are eating away the profit space for retailers. So， after the wrongness， it is very important for Wal-Mart to find the way of development suitable for itself.”
As said before， Wal-Mart chose to go to lesser cities. In October 2013， Wal-Mart announced a series of plans for its development in China. Apart from the plan of establishing 110 new sites， Wal-Mart also reconstructed and upgraded 45 existing outlets in 2013. In 2014 and 2015， Wal-Mart plans to upgrade 55 and 65 outlets respectively.
In 2013， Wal-Mart opened 30 new outlets to increase its presence in the emerging cities of China. In the fourth quarter of last year， Wal-Mart established 14 new outlets in Hunan， Sichuan， Guangdong， Hebei， Jiangxi， Henan， Hubei， Yunnan and Shanxi， 75% of which were established in the third- and fourth-tier cities of China. In addition， several logistics centers of Wal-Mart have been built and put into use. In August 2013， its logistics center in Wuhan， Hubei was officially put into use. Three months later， a similar center was set up in Shenyang， Liaoning.
In addition to that， Wal-Mart set up seven fresh products delivery centers in Beijing， Shanghai and Guangzhou –China’s major cities that boast advanced transportation network. An insider from Wal-Mart said that more delivery centers were going to be completed this year and the company planned to extend its cold chain delivery system wide enough to cover all Wal-Mart outlets in this country.
Meanwhile， Wal-Mart has been dedicated to importing more food from foreign countries to enrich the existing list of products on the shelf. In 2013， the display area for imported products in WalMart’s supermarkets in China increased by 40% compared with the figure in 2012 while the sales increased by 60%. Wine， chocolates and pistachio nuts from foreign countries are now easily available in the supermarkets of WalMart. It also resorts to its Sam’s Club， a business targeting the middle class and rich people in major cities. This is part of Wal-Mart’s restructuring its business in China. As the rents in downtown areas keep rising， Wal-Mart has to move to suburban areas. Therefore， it began to take efforts to attract consumers with cars by providing special services for them.
For example， the categoy of products in Sam’s Club is much smaller than in Wal-Mart’s supermarkets. Most of them are well-selected products with high prices. Usually those products are not available in local supermarkets， such as the cranberry from the U.S.， the Chinese cherries from Chile and the red wine from France.
It is said that those imported products contribute 30% of the sales of Sam’s Club in China， while they can only make up 5% of the sales of WalMart’s supermarkets. Greg Foran said that Wal-Mart China planned to double the sales of the imported foods in the supermarkets while the sales of imported foods in Sam’s Club is expected to increase five-fold in the following year.
It is noteworthy that Sam’s Club did not develop quite well in the past few years. From 1996 to now， it only had 10 outlets in China. In the future， Wal-Mart planned to open two new Sam’s Club outlets in China every year.
Innovations and Challenges
For Wal-Mart， there are still a lot of difficulties in exploring the lesser cities of China. Before it， Carrefour and Metro both chose the third- and fourth-tier cities of China as their next destinations of development. More than that， local companies are more aggressive in that matter. As a latecomer， Wal-Mart has to face furious competition as well.
At the end of 2013， Foran said： “If we can choose a proper site for our new outlet and have experienced people to run the store， we have great confidence to compete with other retailers.”
But in Ren Guoqiang’s eyes， many foreign retailers， including Wal-Mart，“did not open the Chinese market successfully”. “I do not think foreign retailers play important roles in the thirdand fourth-tier cities of China，” Ren Guoqiang said. “Local retailers in China are learning the merits of Wal-Mart， while Wal-Mart failed to learn the good sides of local companies.”
As he said， in most cities of China， if a Wal-Mart supermarket is located next to a local Chinese supermarket， the performance of local supermarket is usually better than Wal-Mart. “To some extent， Wal-Mart did not get the knowhow management in China， including the knowledge of introduction of products， their price， sales promotion and staff incentives. In my opinion， it should put more efforts in learning the style of local supermarkets.” As for Sam’s Club， “If they are run well， they could indeed support the growth of Wal-Mart’s business develop- ment in China， but how much support they can provide for Wal-Mart’s entire plan remains unknown，” Ren Guoqiang pointed out. “Whether Wal-Mart can truly see success in China relies on its‘classic’ shopping mall business.”
Apart from restructuring the offline retail chains， the efforts and results in the ecommerce field are another important factor for Wal-Mart to succeed in China. Presently， the sales of Wal- Mart in China accounts for 10% of the international business. The ecommerce is considered to be an important breakthrough point for Wal-Mart’s business in China.
Nowadays， Wal-Mart’s ecommerce arm is highly related to the performance of Yihaodian， a B2C website in China. In 2012， Wal-Mart increased its shares of Yihaodian from 17.7% to 51.3%， turning itself into the controlling shareholder of Yihaodian. The acquisition of Yihaodian by Wal-Mart was a decision directly pushed by the U.S. headquarters of the company. Even though it was later than the rise of ecommerce in China， it is still bullish on the incessantly growing online shopping market of China.
Through Yihaodian， Wal-Mart is trying to integrate its online and offline business. Presently， the delegates of them are negotiating about more cooperation in supply chain， storage， logistics and self-owned brands. Some experts thought Wal-Mart to be a visionary to choose Yihaodian since the deal can help them both greatly.
In spite of this， Wal-Mart is far from free of worries. There are still a lot of uncertainties for it to successively integrate Yihaodian.
A widely-known fact is that Chinese ecommerce market is quite unusual. After years’ fast growth， Taobao， Tmall， JD and Suning seemed to take control of the profitable market. Even though the annual deals of Yihaodian increased very fast， it cannot see the profits yet. In other words， it has not built up the ability of surviving alone.
More importantly， Wal-Mart did not do enough in the O2O interactive.“What we see is that Wal-Mart and Yihaoduian， as co-related enterprises， only reached synchronization in purchasing. No substantial measures are taken in the guide of consumers and innovations in the business pattern，” said Ren Guoqiang.
Wal-Mart began to close underperforming outlets as of 2013. Last year， this U.S. chain retailer closed a dozen of outlets in China， which easily outnumbered other foreign chain retailers. It is known that Wal-Mart is going to close 15-30 outlets in China in the next two years. They account for 9% of the total number of outlets of Wal-Mart in China but only contribute 2% of its sales in this country.
But Wal-Mart was not simply retreating. It is now focusing on its distribution in the lesser cities of China. In the next three years， Wal-Mart is going to set up 110 new sites in China， including hypermarkets， Sam’s Club stores and delivery centers.
It is not hard to find out that WalMart is contracting its business in major cities of China while increasing its presence in the less important cities. When the entire retail industry is shrouded with depression， Wal-Mart’s actions showed its determination of reform in the Chinese market. In other words， Wal-Mart is re-shaping its outlet network， logistics system and purchasing system.
The Pain of Growing
It was once reported that the outlet of Wal-Mart in Kunshan performed well in the beginning， but when the number of competitors increased， its business began to decline.
The loss was said to be due to the unwarranted “promise”. Even though Wal-Mart held the banner of “Everyday Low Price”， its products， as consumers said， were not cheap at all. It does not have too many fresh products. Those factors gradually drove the consumers in Kunshan away from Wal-Mart.
It is not an independent case. Actually， this most profitable retailer in the world is always staggering in its development in China. Wal-Mart entered China in 1996 with Shenzhen as its first stop. At that time， Wal-Mart copied its U.S. pattern into China and set up a Wal-Mart supermarket as well as a Sam Club’s store in Shenzhen. Presently， Wal-Mart has Wal-Mart supermarket， Sam’s Club and Wal-Mart community stores in China.
In the years’ development in China， Wal-Mart failed to get its online and offline business acclimatized to the Chinese market. During the battle between the American experiences and the Chinese consumers’ habits， WalMart missed expected performance in this emerging market， which did not match its role as the biggest retailer in the world. To a certain degree， it is the plants in China that support the low-cost supply chain of Wal-Mart in the world， allowing it to become extremely deft in controlling the production procedures. But in return， when Wal-Mart tried to sell its things to Chinese consumers，
The Chinese market environment is the first factor to blame. Many people know that the Chinese retail market is filled with competition and is one of hardest markets in the world. Apart from confronting Carrefour， Tesco and Metro， Wal-Mart also needed to fight hand-to-hand with retailers from Japan， South Korea and Taiwan. In addition， a large number of Chinese local chain retailers are growing and competing in this land as well.
Many times， Wal-Mart’s products are known to be low in price. But in China， there are numerous small stores and vendors along the streets， provid- ing multiple choices for the consumers to buy cheap things. In addition， the slowed economic growth rate of China sabotaged the consumers’ ability to spend and further affected Wal-Mart’s business.
Apart from the environment， WalMart’ “unfamiliarity” in the Chinese market is also related to its scale of operation. By now， Wal-Mart had around 400 outlets in China， while Carrefour had 200 stores. These numbers are far from the number a matured and saturated market deserved and are also far different from the ones in the home countries of Wal-Mart and Carrefour. It is known that Wal-Mart has around 4，500 outlets in the U.S. whereas Carrefour had the same number of outlets in France. This means that these retailers are far from scale operation in China. The insufficient number of outlets leads to the dysfunction of the logistics system that Wal-Mart took pride in and greatly increased its cost.
In addition， Wal-Mart has to face a problem that is common for all foreign retailers in China – whether or not to have some local elements added in their stores. This means that foreign retailers have to make a choice between “followup standardized operating procedures”and “flexible operation”.
The strategy Wal-Mart followed in the previous few years is that the headquarters gave up a part of its decisionmaking rights and gave the outlets more autonomy. But in November 2012， WalMart integrated its 30 purchasing offices in China into eight regional offices. In October 2013， Wal-Mart also increased the centralization of purchasing with some small suppliers having been eliminated.
The frequent occurrence of food safety issues is an important reason for Wal-Mart to accelerate the “centralization of purchasing rights”. In September 2011， Wal-Mart’s three supermarkets in Chongqing were reported to “sell the ordinary chilled fresh pork in the name of green food”， for which Wal-Mart had to make an official apology. In December 2013， Wal-Mart’s outlet in Jinan was reported to “sell cheap fox meat under the color of cooked beef and donkey meat”. Once again Wal-Mart apologized for it. In January 2014， Wal-Mart was reported again to sell “non-qualified products”.
Obviously， the centralization of purchasing rights will apply strict policies and procedures to the system to ensure the product quality. However， the centralized management will impair the competitiveness of Wal-Mart in some cities.
“For Wal-Mart， the difficult part is how to get used to the Chinese market and handle well between the standard and flexibility，” said Ren Guoqiang， partner of Roland Berger Strategy Consultants. “As for the organizational structure， which part can see the eased control and how to decentralize the rights without causing any disturbance？ All these things need careful consideration.”
Apart from the operating pattern， Wal-Mart， as well as other foreign chain retailers， has to fight against other problems in China， such as the lack of qualified staff， unbalanced infrastructure and scarce in reliable cold chain delivery network.
The Structural Changes
In the year of 2013， the retail companies’ closing stores was one of the most heard reports in the media.
According to the Statistical Report about Major Chain Retailers’ Closing Stores in 2013， chain retailers （furniture and home appliance retailers excluded）closed 31 outlets in total in 2013. WalMart alone closed 14 outlets in China last year， taking the championship among all major foreign chain retailers. Tesco closed three outlets in China due to operating problems while Lotus closed two. The Chinese local chain retailers did not see better days as they closed 35 outlets last year.
Most of the closures of outlets happened because of the expired leasing contracts， business changes， weak profitability， strategic need， transformation and poor management. According to Ray Bracy， senior vice president of Wal-Mart China， Wal-Mart closed some outlets last year because of its fascination with expansion in the past. Under certain conditions， their attention to the expansion grew bigger than the efficiency.“We will no longer make that mistake，” he said. Greg Foran， president and CEO of WalMart China said that WalMart would run strict tests over the market conditions when setting up the 110 new outlets. Some underperforming stores need to be closed， which meets the requirements of the corporate management. It can also help Wal-Mart achieve better development in the Chinese market.
In Ren Guoqiang’s opinion， WalMart selective closure of stores is generally a right choice. “From the economic benefits， closing some underperforming outlets could move the scarce resources to outlets with better performances. This closure and transferal are very normal and nothing speculative can be found here，” he said. “In addition， the market in the major cities of China has already been saturated and the rents are increasing faster than expected. The labor cost is rocketing up too. All those factors are eating away the profit space for retailers. So， after the wrongness， it is very important for Wal-Mart to find the way of development suitable for itself.”
As said before， Wal-Mart chose to go to lesser cities. In October 2013， Wal-Mart announced a series of plans for its development in China. Apart from the plan of establishing 110 new sites， Wal-Mart also reconstructed and upgraded 45 existing outlets in 2013. In 2014 and 2015， Wal-Mart plans to upgrade 55 and 65 outlets respectively.
In 2013， Wal-Mart opened 30 new outlets to increase its presence in the emerging cities of China. In the fourth quarter of last year， Wal-Mart established 14 new outlets in Hunan， Sichuan， Guangdong， Hebei， Jiangxi， Henan， Hubei， Yunnan and Shanxi， 75% of which were established in the third- and fourth-tier cities of China. In addition， several logistics centers of Wal-Mart have been built and put into use. In August 2013， its logistics center in Wuhan， Hubei was officially put into use. Three months later， a similar center was set up in Shenyang， Liaoning.
In addition to that， Wal-Mart set up seven fresh products delivery centers in Beijing， Shanghai and Guangzhou –China’s major cities that boast advanced transportation network. An insider from Wal-Mart said that more delivery centers were going to be completed this year and the company planned to extend its cold chain delivery system wide enough to cover all Wal-Mart outlets in this country.
Meanwhile， Wal-Mart has been dedicated to importing more food from foreign countries to enrich the existing list of products on the shelf. In 2013， the display area for imported products in WalMart’s supermarkets in China increased by 40% compared with the figure in 2012 while the sales increased by 60%. Wine， chocolates and pistachio nuts from foreign countries are now easily available in the supermarkets of WalMart. It also resorts to its Sam’s Club， a business targeting the middle class and rich people in major cities. This is part of Wal-Mart’s restructuring its business in China. As the rents in downtown areas keep rising， Wal-Mart has to move to suburban areas. Therefore， it began to take efforts to attract consumers with cars by providing special services for them.
For example， the categoy of products in Sam’s Club is much smaller than in Wal-Mart’s supermarkets. Most of them are well-selected products with high prices. Usually those products are not available in local supermarkets， such as the cranberry from the U.S.， the Chinese cherries from Chile and the red wine from France.
It is said that those imported products contribute 30% of the sales of Sam’s Club in China， while they can only make up 5% of the sales of WalMart’s supermarkets. Greg Foran said that Wal-Mart China planned to double the sales of the imported foods in the supermarkets while the sales of imported foods in Sam’s Club is expected to increase five-fold in the following year.
It is noteworthy that Sam’s Club did not develop quite well in the past few years. From 1996 to now， it only had 10 outlets in China. In the future， Wal-Mart planned to open two new Sam’s Club outlets in China every year.
Innovations and Challenges
For Wal-Mart， there are still a lot of difficulties in exploring the lesser cities of China. Before it， Carrefour and Metro both chose the third- and fourth-tier cities of China as their next destinations of development. More than that， local companies are more aggressive in that matter. As a latecomer， Wal-Mart has to face furious competition as well.
At the end of 2013， Foran said： “If we can choose a proper site for our new outlet and have experienced people to run the store， we have great confidence to compete with other retailers.”
But in Ren Guoqiang’s eyes， many foreign retailers， including Wal-Mart，“did not open the Chinese market successfully”. “I do not think foreign retailers play important roles in the thirdand fourth-tier cities of China，” Ren Guoqiang said. “Local retailers in China are learning the merits of Wal-Mart， while Wal-Mart failed to learn the good sides of local companies.”
As he said， in most cities of China， if a Wal-Mart supermarket is located next to a local Chinese supermarket， the performance of local supermarket is usually better than Wal-Mart. “To some extent， Wal-Mart did not get the knowhow management in China， including the knowledge of introduction of products， their price， sales promotion and staff incentives. In my opinion， it should put more efforts in learning the style of local supermarkets.” As for Sam’s Club， “If they are run well， they could indeed support the growth of Wal-Mart’s business develop- ment in China， but how much support they can provide for Wal-Mart’s entire plan remains unknown，” Ren Guoqiang pointed out. “Whether Wal-Mart can truly see success in China relies on its‘classic’ shopping mall business.”
Apart from restructuring the offline retail chains， the efforts and results in the ecommerce field are another important factor for Wal-Mart to succeed in China. Presently， the sales of Wal- Mart in China accounts for 10% of the international business. The ecommerce is considered to be an important breakthrough point for Wal-Mart’s business in China.
Nowadays， Wal-Mart’s ecommerce arm is highly related to the performance of Yihaodian， a B2C website in China. In 2012， Wal-Mart increased its shares of Yihaodian from 17.7% to 51.3%， turning itself into the controlling shareholder of Yihaodian. The acquisition of Yihaodian by Wal-Mart was a decision directly pushed by the U.S. headquarters of the company. Even though it was later than the rise of ecommerce in China， it is still bullish on the incessantly growing online shopping market of China.
Through Yihaodian， Wal-Mart is trying to integrate its online and offline business. Presently， the delegates of them are negotiating about more cooperation in supply chain， storage， logistics and self-owned brands. Some experts thought Wal-Mart to be a visionary to choose Yihaodian since the deal can help them both greatly.
In spite of this， Wal-Mart is far from free of worries. There are still a lot of uncertainties for it to successively integrate Yihaodian.
A widely-known fact is that Chinese ecommerce market is quite unusual. After years’ fast growth， Taobao， Tmall， JD and Suning seemed to take control of the profitable market. Even though the annual deals of Yihaodian increased very fast， it cannot see the profits yet. In other words， it has not built up the ability of surviving alone.
More importantly， Wal-Mart did not do enough in the O2O interactive.“What we see is that Wal-Mart and Yihaoduian， as co-related enterprises， only reached synchronization in purchasing. No substantial measures are taken in the guide of consumers and innovations in the business pattern，” said Ren Guoqiang.