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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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Wal-Mart's expansion coincides with China's decision to lift expansion restrictions on foreign retailers in December, a concession that was part of the nation's entry in the World Trade Organization in 2001. That move — linked with the WTO's abandonment of textile and apparel quotas — has sparked a gold rush among the world's largest retailers, including Holland's Makro Cash & Carry, the U.K.'s Tesco plc and Germany's Metro AG. Wal-Mart China is a joint venture between Wal-Mart Stores Inc. and three investment firms backed by the Chinese government. The entity operates SuperCenters, Sam's Clubs and Neighborhood Markets in 20 cities.

Many analysts predict Carrefour, a skilled international operator, will provide some of Wal-Mart China's stiffest competition. The French company generates $2 billion in revenues from 62 stores in China, making it the fifth-largest retailer there, according to Accenture research.

Wal-Mart, by contrast, is China's 19th-largest retailer. Wal-Mart China's SuperCenters lag their U.S. counterparts in revenues, generating on average $35 million annually, compared with $80 million to $120 million in the U.S.

Chinese spend an average of about $5 on a typical Wal-Mart visit.

"The average ring [customer transaction] in the U.S. is around $27, so $5 is not quite doing it," said Smith Barney analyst Deborah Weinswig, who also took part in the March tour in China. "The upside is they've got really cheap labor, but you've also got greater wear and tear on the stores without necessarily getting the sales."

Wal-Mart China needs another five years of growth before it makes a significant contribution to the larger company, she said.

Wal-Mart's stores are "in their infancy in China,'' Augustine said. "I thought their format was much like their competitors. It wasn't so terribly unique, but that's probably OK at this stage."

Still, domestic companies are gaining clout in China. In 2004, the Chinese government formed the nation's largest retailer, $8.1 billion Shanghai Brilliance Group Co. Ltd., by merging China's largest department store, drugstore and hypermarket chains to form a conglomerate overseeing 8,000 stores.

Sandy Kennedy, president of the Retail Industry Leaders Association, an Arlington, Va., lobbyist for mass merchants, traveled to Shanghai this month with representatives from Home Depot, Target Stores, Wal-Mart and Gap.
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