Rapidly growing marketplace shapes personnel, marketing strategies

DSN Retailing Today, Dec 13, 2004 by Mike Troy

The level of construction activity in China is one of the most striking reminders that the world's most populous nation also has the fastest-growing economy. Construction cranes are visible from virtually anywhere in Shenzhen, Wuhan or Beijing, a fact that helps explain how China managed to consume half of the world's cement last year and replaced the United States as the largest recipient of foreign direct investment.

The situation was created by a liberalization of China's economic policies that helped it secure inclusion in 2001 to the World Trade Organization. As a condition of its ascension into the WTO, China also agreed to allow foreign companies to set up wholly foreign-owned businesses to engage in retail or wholesale activities. That provision became effective this month and clears the way for foreign retailers who are not already doing so to begin operations in China without relying on joint venture partners.

The change is expected to help the Chinese economy continue barreling forward, and retailers are salivating over the increases in wages and disposable income that are projected to accompany further economic growth.

"The Chinese market is expected to record massive growth over the next few years. With a middle-class group swelling in size and household income increasing, consumer spending is projected to rise to 65% by 2010 and 71% by 2020," according to a global retail and consumer study from PricewaterhourseCoopers.

It is little wonder that virtually every major global retailer is angling for a piece of China's fragmented retail market. Currently, three-fourths of the world's largest retailers have a presence in China, including Japanese chains such as Aeon and Ito-Yokado; German retailers Metro and Tengelmann; France's Carrefour and Auchan; B&Q from the United Kingdom; and Wal-Mart.

The interest by foreign retailers and the rapidly changing market dynamics have created a truly unique competitive situation. The presence of the world's major players is causing the Chinese retail industry to evolve at a greatly accelerated pace compared to what took place in the United States. Over the span of four decades in the United States, independent food stores and downtown shopping districts gave way to supermarkets, suburban malls and discount stores. Then came specialty stores, power centers, consolidation and supercenters.

What took 40 years in the United States is seemingly taking place overnight in China. One day a Chinese woman was dodging a pile of chicken feathers at a wet market and meeting various other needs by dealing with dozens of independent shop owners. The next, she was inside a gleaming new Wal-Mart supercenter buying meats prepared and displayed under sanitary conditions or having one of a dozen brand-specific cosmeticians vying to help her apply make-up.

As strange as it sounds, Wal-Mart is a veteran of Chinese retailing, having opened its first stores in Shenzhen roughly eight years ago. By the end of this year, it will have 43 stores open in China and plans for another 15 units next year. That's not a lot of stores in a country the size of China, but on a percentage basis the growth is quite rapid, and the goal right now is to make sure Wal-Mart is prepared operationally to accommodate the growth.

"Training is the critical piece right now," said Wal-Mart Asia president and ceo Joe Hatfield. "Our biggest challenge as we accelerate our growth is we cannot let our growth outpace our people."

Wal-Mart next year will hire approximately 10,000 new employees to staff its 15 new stores and fill jobs at other stores created by a turnover rate estimated to be well below half that in the United States. Adding to the training challenge is the fact that most of those that are hired will have no retail experience. China's retail industry is so new and growing so rapidly that there is a very small base of experienced retail employees from which to choose.

To address the lack of experience, Wal-Mart has adjusted its training programs and the structure of its field operations team. Large numbers of employees can pass through what Wal-Mart calls a "store of learning." It is a concept that originated with Wal-Mart's Asda stores in the United Kingdom in which certain employees are chosen to work in a select group of stores where they receive specialized training, learning from the company's best employees.

There were two stores involved in the program last year, a third was added this year and plans call for two more in 2005. Each store is capable of training an estimated 300 people per year based on the current regimen.

In addition to these training stores, Wal-Mart employs a dual manager system at its Chinese stores so each store has co-managers, co-merchandise managers and co-department managers.

Associates eagerly embrace Wal-Mart's training programs because they are viewed as an opportunity to gain additional education, said Shawn Gray, vice president of operations in China. Another hint at the attitude of Wal-Mart's Chinese associates is how they react to being named employee of the month. Such a distinction is considered an honor, and if an associate's family lives in the city where the store is located they will be invited to a ceremony at the store, Gray said.