Wal-Mart Stores Inc. on Thursday said it will open 110 new stores in China, even as growth in the country slows.
This story first appeared in the October 25, 2013 issue of WWD. Subscribe Today.
The plan calls for further developing stores in second-, third- and fourth-tier cities in China. According to retail experts, Western companies are now starting to realize that they expanded too quickly into far-flung areas where residents are unfamiliar with or uninterested in overseas brands.
The expansion will center on opening Supercenters and Sam’s Clubs, as well as remodeling existing stores and investing in the logistics network. Wal-Mart opened Sam’s Clubs in Hangzhou and Suzhou this past year, bringing the total number of Sam’s Clubs in China to 10. The retailer said it expects to open several more in the next three years. Greg Foran, Wal-Mart China president and chief executive officer, said the retailer plans to remodel about 45 stores this year, 55 next year and 65 the following year. The company will also invest further in its logistics and distribution network. It opened a distribution center in Wuhan in August. Next month, Wal-Mart will unveil a new distribution center in Shenyang, and the company plans to open more distribution centers over the next year.
At Wal-Mart’s annual meeting for the financial community on Oct. 14, Doug McMillon, president of Wal-Mart International, said, “Our new store performance is improving. I’m encouraged in particular by what we’re seeing in China with our recent openings.”
In markets such as China and Brazil, Wal-Mart is facing headwinds from wage inflation in the high single digits and in some cases, double digits. “We’ve made great progress at driving our units-per-labor-hour up,” McMillon said. “In the years I’ve been involved in international, I haven’t seen a circumstance like we have in some of our markets, where wage inflation is in the high single digits and in some cases, double digits.”
China is third among international markets in terms of return on investment, “but we can see a path to dramatically improving our return on investment in China over time,” McMillon said. “So there’s upside in China.”
“China is a key strategic market for Wal-Mart and we are very well positioned to serve the country’s emerging middle class with great products they can trust,” said Wal-Mart Stores ceo Mike Duke. “Our management team is committed to continued growth in large and smaller cities across China, and doing it in the right way. Our investments in new stores, innovation and retail supply chain will create jobs and support China’s plans for growth.”
The openings will create nearly 19,000 new retail jobs, according to Wal-Mart.
McMillon said the company is also closing stores in China “that for location reasons or layout reasons are never going to generate the return that we need them to generate.” The closures represent up to 9 percent of the total store portfolio, but only 2 to 3 percent of total sales volume through next year.