By  on November 14, 2005

NEW YORK — Wumart Stores Inc. has a familiar ring to it.

It's not just in the name. Wumart is Beijing's largest and fastest-growing retail chain, selling low-price private label and brand-name groceries and consumer goods. It is rapidly becoming the kind of behemoth corporation known well by U.S. shoppers.

But could Wumart expand here? The short answer is maybe. In a market that is overstored and saturated with homogenous retail formats, Wumart would have a few hurdles. Still, it's an intriguing thought, given the Chinese retailer's rapid growth.

Since its initial public offering in 2003 on the Hong Kong Exchange, Wumart has grown roughly 50 percent per year in sales and earnings. Wumart opened its first store in 1994. Today, it has about 500 stores. And the retailer expects to double its size in the next five years. Wumart does not yet offer apparel, but given China's textile production and the all-encompassing nature of the Wumart stores, it doesn't seem far behind. The retailer did not return calls seeking comment for this story.

Co-opting the successful techniques of popular U.S.-based megastores has also helped the retailer. The name, according to Wumart chairman and president Zhang Wenzhong in published reports, is purely coincidental, and came from parent company Wumei Holdings. Still, the Chinese firm's blue logo is a no-frills design while several of the Web site banners and promotional material use concentric circles that resemble, well, Target's.

The company's philosophy also echoes Wal-Mart and other U.S.-based mass retailers. On the company's Web site, Zhang said the retailer is "committed to catering, with ever-improving standards, quality product and unconditional service. Our team is dedicated, wholeheartedly, to strive for exemplifying at its best what is unique about the retail chain business and its success in China."

Whether Wumart can sustain its growth in China and elsewhere in the world remains to be seen. It has already made strides to separate itself from the hordes of international grocers grasping for Chinese business — including Wal-Mart, Carrefour and Tesco — by bringing unique products to its stores. This past spring, Wumart hosted the Italian Trade Commission and offered more than 400 Italian foods and spices in nearly 20 of its markets. According to the company, Wumart stores can "serve as a pre-marketing platform for new products, as well as a window from which the Chinese consumers encounter and enrich their life with international brands and culture." And, of course, become the store that shoppers identify with a unique product mix.Taking the Wumart model outside of China and into the U.S., the home base for the super-retailers that it emulates, will prove more difficult than bringing new products in. Wumart itself has not made mention of any international expansion, but a new wave of Chinese businesses are growing outside of their native country, with mixed results. Successful Chinese companies of all stripes, not just retailers, are looking to expand operations and raise capital in the U.S., for example. However, they face numerous issues, not least of which is oversaturation of both the consumer and financial markets.

For example, reciprocal investment — foreign firms setting up shop or opening offices in the U.S. — is aimed as raising capital. In Wumart's case, however, opening up hypermarkets in the overstored U.S., where Wal-Mart is facing criticism for economic and social irresponsibility, reciprocal investment would be near impossible.

Listing on the New York or American Stock Exchanges or on Nasdaq poses additional problems, such as a lack of financial information on Chinese companies, which is needed to audit a public firm.

According to Joseph O'Mara, a partner in charge of KPMG's China practice, "local audit firms are rubber stamps for local tax bureaus. The audit really begins with one of the big multinationals." Credit rating is also hard to gauge because most companies are state owned or financed, so audit information is critical to expanding outside of China. The cost of an audit, though, could run anywhere from several hundred thousand dollars to $50 million, said O'Mara, who spoke to Chinese companies at the 2005 China Growth Conference in New York in early November. The conference, hosted by investor relations firm Adam Friedman Associates LLC, brought in investors, auditors and Chinese companies interested in tapping into the U.S. financial markets.

Another hurdle is time. Getting listed in order to raise capital on one of the American exchanges, considered the most prestigious in the world, can take up to a year. Still, the incentives are high. "There is significant investor appetite for Chinese companies right now," said Amy McQuade, vice president of the Amex.

Meanwhile, Wumart is working on a growth pace that appears to be aggressive. According to the chairman's letter in the retailer's 2005 annual report, Zhang said the retailer is seeking "rapid expansion at low cost" while "assessing opportunities of new store openings or acquisition[s] in a prudent manner" as a way to guarantee its "future growth and further profitability."

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