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.

with contributions from Vicki Rothrock
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The $285 billion retailer based in Bentonville, Ark., plans to grow 30 to 50 percent in retail square footage annually in China for the foreseeable future, executives told Wall Street analysts during a tour of Wal-Mart China's operations in March. This year, Wal-Mart China intends to open 15 to 17 stores, bring SuperCenters to Beijing and enter Shanghai for the first time this summer. It is the most ambitious expansion since Wal-Mart opened its first units in Shenzhen, a city of more than one million people about 22 miles north of Hong Kong, in 1996.

Mark Miller, an analyst at William Blair investment banking, estimated in a March research report that Wal-Mart China's revenues within five years might rise to $10 billion from $1 billion.

Wal-Mart has already added two extra managers to each of its stores to ensure there are enough trained people to operate new units.

"We've got two-and-a-half to three years of people already in place for growth," Menzer told reporters at a Wal-Mart media conference in April.

It's an unusual move for Wal-Mart, which strictly controls labor costs. More remarkable, the antiunion retailer has said it would allow its Chinese workers to unionize if they request to do so under the country's labor provisions. So far, no store has unionized.

On the prospect of unions, Menzer said: "It works best in China to do what the government tells us to do."

Wal-Mart is far from alone in its China push.

"There is a mad dash to grab as much land, as much real estate as you can," Joe Mueller, a partner in Accenture's Asia retail and consumer goods practice, said in an interview. "There is a lot of newfound wealth in China and a lot of opportunity for companies to grab consumers and run with them."

Still, there are hurdles. Infrastructure is wobbly in many places. Each Wal-Mart China SuperCenter has two backup generators to protect food against power failures, said Christine Augustine, a Bear Stearns analyst who toured Wal-Mart China's operations in March. Development of roads, water and sewage barely keeps up in cities exploding with growth.

Getting merchandise "to the right place for the right price has been a tremendous challenge over the years and it still remains an area to be tackled," Mueller said.
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