Wal-Mart vaults the Great Wall of China

Discount Store News, Jan 20, 1997 by James Mammarella, Pete Hisey

SHENZHEN, CHINA - In this booming free-enterprise test zone for the biggest market - place on earth, Wal-Mart has staked out a distinct position. With a 180,000-sq.-ft. supercenter and a 115,000-sq.-ft. Sam's Club open since August 1996, Wal-Mart has made headlines - good and bad. More importantly, the chain has attracted crowds of shoppers to fuel robust sell-throughs on products ranging from high-ticket home appliances and electronics to cosmetics, H&BC and food.

A sleepy border village to nearby Hong Kong just a decade ago, Shenzhen today is a city of four million, the conduit for a flood of foreign capital, a swirl of economic experiments and runaway skyscraper construction.

The world's largest retailer is in the thick of it. The Shenzhen supercenter is the first multilevel Wal-Mart store in the world, and retailer is tackling such problems as moving shoppers' baskets and carts from floor to floor, merchandising around angular loadbearing walls, merchandising to a population skewed toward young single men and outperforming competitors without causing their common "partner" - the local Chinese government - undue consternation.

Wal-Mart's reputation preceded it in China, and the chain had to reassure business and political leaders it would play hard but fair. The issue of product sourcing inevitably arose here, leading to a legal challenge to Wal-mart, but the retailer's approach is pragmatic.

"Our worldwide sourcing is a real competitive strength," Wal-Mart International president and ceo Bob Martin told DSN. "You want a constantly flowing introduction of new products to bring to the consumer the best value worldwide. It creates added value. We become more and more a complete store to them."

With this idea resonating throughout Wal-mart and gladly accepted by its new customers here, the retailer has had little trouble fending off two widely reported local complaints of fraudulent or counterfeit labeling. In one case, on which a Chinese court had not ruled at press time, a local business that had purchased 100 home video units from Sam's Club charged that the highly desirable "Made in U.S.A." stickers were misleading.

This was surprising in a country where shoppers routinely open cartons in the store to plug in stereos, microwave ovens and TVs, and scrutinize every product feature. Wal-mart has configured its electric wiring around display areas to specifically support such activity.

Still, the local vs. import question is frequently raised. Do local customers want high-status goods from the United States? Sure. Do local governments promote the purchase of internally produced goods?

Of course.

Yet the key to success, Martin said, is "the value orientation in the mind of the consumer.

"When you have a significant percentage of imports, you don't necessarily gain the leverage you want in creating the price image. Also, in the event these countries shift and change [for example, Mexico has been suffering through an economic dislocation], you have to shift back. So you build domestic sourcing and rely on that base.

"Food," Martin asserted, "is a good insulator for tough times." It is also a supreme traffic-builder in a country with little refrigeration.

Wal-Mart's rich selection of foods, from roast chicken and American donuts to fresh seafood and frozen dim sum, is one reason for the chain's early gains in China.

Another is the high level of affluence in the Guangdong province, where manufacturing plants are growing like weeds, often turning a small landholder into an overnight success when he sells an acre of rice paddy or banana trees to a developer eager to build a new factory site. Entrepreneurs from across China have flocked to zones like Shenzhen. Cell phones in hand, they swoop into Sam's Club unleashing packs of currency in exchange for $500 stereo speaker sets and $1,200 Panasonic color televisions.

In this environment where 40-story apartment towers shoot up faster than bamboo, local consumers have bought four times the number of small appliances in Wal-Mart's original projection. Other hot categories are telephones, electronics, convenience products from bottled water to soup mixes and home decor items such as area rugs, decorative pillows and framed art. Shoppers also enjoy the chain's broad selections of H&BC items, basic casual apparel and juvenile furniture, not to mention Barbie dolls.

Wal-Mart plans to open at least two more units in southern China this year, and Martin told DSN he would encourage the opening of stores in other regions as soon as the chain's growing Chinese staff is seasoned.

Joe Hatfield, president and coo for Wal-mart Asia, is ready and willing. In the meantime, he said the Shenzhen supercenter is whittling down its assortment from the current 23,000 stockkeeping units.

His goal: "We will set the standard for turn for all of the international division stores."