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Live Turtles and Makeup: Wal-Mart's China Growth Key to Retailer's Future

Wal-Mart is shifting its expansion in China, the world's fastest-growing economy, into high gear after a decade of cautious growth.

By
with contributions from Vicki Rothrock
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The three-level Wal-Mart SuperCenter at 12 Fenghuang Road sits on a bustling plaza in the heart of Shenzhen, China, where grandmothers tend children and vendors hawk sugarcane juice, hair accessories and even pet puppies from blankets spread on the ground.

In this neighborhood of high-rise apartments, most customers arrive on foot or by bicycle. About 12,000 shoppers visit this SuperCenter each day, purchasing L'Oreal makeup, live turtles or countless other products in a hybrid of Chinese and U.S. retailing. Recently, there were even large displays of sex-instruction videos, an extraordinary item given the traditions of Chinese society and Wal-Mart's socially conservative posture in the U.S.

Wal-Mart is shifting its expansion in China, the world's fastest-growing economy, into high gear after a decade of cautious growth. Registers in Wal-Mart China's 46 stores tally 450,000 transactions a day, about $1 billion in sales annually, Wall Street analysts and the company said.

Executives hope it is mere prelude. China is an opportunity Wal-Mart cannot afford to miss. And the competition with rivals such as France's Carrefour, the world's second-largest retailer after Wal-Mart, is sure to be intense.

At a June 13 Credit Suisse First Boston conference, Wal-Mart International chief executive officer John Menzer told analysts that China was the "star performer" of Wal-Mart's global operations, based on better-than-expected same-store sales this year.

"China is a big bet," he said. "We have 200,000-square-foot stores with still very low transaction amounts. It's a real bet in an emerging economy and an emerging middle class, and it's starting to happen."

The nation of 1.3 billion people is on a short list of global markets with the heft to influence Wal-Mart's stock price because China, which recorded $654 billion in taxable retail sales last year, according to the Ministry of Commerce, offers Wal-Mart the prospect of significant overall sales growth.

This fiscal year, for example, Wal-Mart must add at least $28 billion in sales to maintain its double-digit growth, and as its U.S. business matures, new markets such as China will be needed to drive those increases.

"People get excited about China because they look at the size of the economy, at the consistent growth over 20 years, and at the increase in individual and family income and spending power," Beth Keck, Wal-Mart director of international corporate affairs, said in an interview. "In the last 10 years, you've seen the development of [formal] retail. So it's a great opportunity."
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