Walmart slims down stores for China

04-Dec-2010

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By Jonathan Birchall, FT.com

Walmart, the world’s largest retailer by sales, is launching a push to reach lower-income and rural consumers in China with a new “compact hypermarket” format originally developed in its Latin American markets.

Doug McMillon, chief executive of Walmart’s international business, told the Financial Times that the US retailer had opened what is expected to be the first of a series of new stores in China using the low-cost, bare-bones model of its Bodega Aurrera stores in Mexico, and its Changomas chain in Argentina.

He said that compared with the retailer’s larger Supercenters, the compact hyper “is a smaller store, typically a cheaper physical plant; a cement floor, perhaps brick walls, sometimes we don’t have air conditioning”.

“It is going to help us reach more people … not only in urban markets but also reaching people in rural areas” and in smaller cities, he said. Walmart will have about 300 regular hypermarket stores in China, aimed mainly at emerging middle-class customers.

The new compact hypermarket is just over 37,000 sq ft, and opened under the Trustmart banner last month in Zhang Shu in Jiangxi province, a town of 500,000 people. Mr McMillon said the return on investment in the compact hyper formats was equal to larger Supercenter hypers, which are more than twice the size. “But the cost of operating it is less, so the [prices] are less.”

Mr McMillon told investors in October that “compact hypers will become even more important” in the future of Walmart’s international business. Overseas revenues account for about a quarter of Walmart’s $400bn-plus in annual sales, but just a third of its operating income.

He said the format might also be suited to sub-Saharan Africa, if Walmart wins approval for its $2.4bn bid for a controlling stake in Massmart, a South African retailer.

Walmart is also testing two SmartChoice convenience stores in Shenzhen, aimed at more prosperous urban shoppers.

Carrefour, the French retailer, has about 170 hypermarkets in China. Tesco, with 58 hypermarkets, aims to quadruple its sales there to £4bn ($6.2bn) over the next five years.

Walmart does not break out total sales or income data for the 14 countries where it trades outside the US. In China, where it has opened just over 30 stores in the past 12 months, it has said that third-quarter sales increased 15.2 per cent year on year, with comparable store sales up 6.9 per cent.

Its global sales in the 14 countries outside the US grew by 9.3 per cent compared with US growth of 1.4 per cent in the third quarter against a year ago.

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