Wal-Mart sees potential fortune in China debut - Wal-Mart Stores Inc. opens Sam's Club and Wal-Mart Supercenter units in Shenzhen

Discount Store News, July 15, 1996 by Teresa Andreoli

SHENZHEN, CHINA - As Wal-Mart introduces itself to China this week by opening the country's first Wal-Mart Supercenter and Sam's Club, the discounter has made it clear its commitment to international growth and its quest for more U.S. vendors for global sourcing partnerships has just begun.

Wal-Mart joins French hypermarket operator Carrefour and two Japanese retail operators, Yaohan (department store and supermarket operator) and Jusco (supermarket and shopping mall operator), in the land of more than 1 billion people who know very little about megamerchants.

Wal-Mart has chosen to spread its down-home spirit first in Shenzhen, a mainland Chinese city of 3.8 million residents, located on the opposite shore from Hong Kong. Twelve years ago it was a fishing village of 38,000 people. Now it is a densely populated hub overrun with industry, including a 2-year-old Compaq computer factory. Although Wal-Mart will confirm only these two units this year (grand opening was tentatively scheduled for July 11), analysts have called for five supercenters before the end of 1997.

Theoretically, the dense population of the country, 1.2 billion lion people, provides vast potential for growth. Compared to the U.S. population rate of 260 million, Wal-Mart could be as prevalent in China as it is in the U.S. in seven years, Bob Martin, head of the international division for the Bentonville, Ark.-based discounter, hypothesized at Wal-Mart's annual shareholders meeting last month.

Wal-Mart expects that its International division, with current sales between $5 billion and $6 billion, will at least double in size by 2001.

"Over the next five years, 25% of Wal-Mart's earnings growth will come from the International division," Millard Barron, senior vp and coo of the division, told DSN.

Breaking with the usual Wal-Mart architecture and location traditions, the three-story Shenzhen supercenter is situated in a four-tower, 30-story apartment building. The store measures 140,000 sq. ft. of selling space (about 40,000 sq. ft. larger than its latest, smaller-market U.S. supercenter) and carries about 25,000 skus, about half of what the average Wal-Mart Supercenter stocks. It will follow an EDLP strategy, an aspect of retailing that is new to the region.

The Sam's Club is located across town in a newly constructed 123,000-sq.-ft. facility.

"The supercenter's bakery is bigger than the average food store in Shenzhen," Barron said. Most consumers there shop for food daily on a shop-to-shop basis (as in stopping everyday at the bakery, butcher and produce stores, since home refrigeration is significantly below the level of the average U.S. household). There are thousands of food stores in the region, Barron said, and most match the size of the American convenience store.

Assortment is key, and as of opening day, about 85% to 90% of the mix will be domestically sourced, with the remainder imported. But some vendors close to Wal-Mart International hinted that the ratio is likely to change and include more U.S. brands as Wal-Mart International signs on more U.S. partners.

Barron recently recruited vendor partners at the annual Housewares Export Council of North America (HECNA), a committee of the Rosemont, Ill.-based National Housewares Manufacturers Association. Of the 100 or so attendees, only 23 were going to global markets with Wal-Mart. Although the financing needed to go international may intimidate the smaller vendors, or those that don't have the information or savvy of Procter & Gamble, Nestle or Lever Bros., Barron warned that most vendors can't afford not to develop international relations. Barron projects that if the import trends continue, American brands will have to fight with international vendors for shelf space and market share on our own turf, unless U.S. makers develop global relationships now. Barron and other vendor partners agree that American brands are in high demand in the international markets Wal-Mart has tapped, from Mexico to South America and now China.

"Anything American has a lot of attraction. Consumers there are intrigued with U.S.-branded products," Caroline Lober, Newell International area sales manager for China, Hong Kong, Taiwan and South Saharan markets, said after her most recent visit to Shenzhen. Lober expects Wal-Mart's customer service to be a big draw in bringing consumers back after the initial expected glut of curious consumers.

The months to come will tell more about the giant discounter's presence in this foreign market. Barron said the average age of the Shenzhen resident is 27. In terms of culturally related merchandise strategies, Barron noted that color is particularly important to the Shenzhen consumer, especially in women's dresses and cosmetics. He also likened the consumer development of urban Chinese residents to the U.S. in the 1960s or 1970s.

One supplier said that memberships to Sam's Club had begun to sell prior to the store opening and that the high number of factories operating in the area was a bonus for the warehouse club.