Wal-Mart a step behind in China big-box race
Posted on Sunday, July 30, 2006
URUMQI, China — In this remote region along the old Silk Road, Carrefour is on the march.
The Paris-based retailer has already opened two stores here, one in the northern end where many ethnic Chinese live and another next to a mosque in the Muslim section populated by Uighurs. This fall, Carrefour will open a third megastore in this city of 2 million, selling groceries alongside its other goods.
What about Bentonvillebased Wal-Mart Stores Inc. ?
“I can’t imagine they will come here,” Christian Roquigny, who manages Carrefour’s Uighur store, said as he walked past a golden-domed mosque, nodding to men coming out after Friday afternoon prayers.
Roquigny boasted that his store sold no pork and was certified as halal, or permissible under Islamic dietary law. Wal-Mart managers, he said, aren’t given the same flexibility to adapt.
That may or may not be true, but as the world’s leading retailers battle for new markets around the globe, they are increasingly setting up in places like Urumqi. Carrefour’s average checkout total there is just over $ 5.
Wal-Mart and Carrefour, the world’s No. 1 and No. 2 retailers, have stepped up their expansion in China in recent years, virtually matching each other store for store in many locales. But the nearest Wal-Mart to Urumqi is 1, 400 miles to the east.
Carrefour’s operation in this western city demonstrates why the French company has raced ahead of its multinational rivals in the world’s most-populous nation. By joining with Chinese partners, adapting to local culture and employing a supply chain that includes 18-wheel trucks and three-wheel bicycles, Carrefour has become the biggest foreign retailer operating in China.
It operates 79 stores in 32 Chinese cities, compared with 60 locations in 30 cities for Wal-Mart. Last year Carrefour’s sales in China totaled $ 2. 2 billion, compared with $ 1. 2 billion for Wal-Mart, according to the Commerce Ministry in Beijing.
“Carrefour’s management is quite flexible and their local- ization is better,” said Huang Guoxiong, a business professor at Renmin University of China in Beijing. Localization is an industry term for adapting a store to local tastes and preferences.
Wal-Mart is accelerating its store openings in China — it plans to open at least 18 this year, six more than Carrefour — and analysts are reluctant to bet against the discount retailer given its enormous resources. Its global sales last year reached $ 285 billion, triple that of Carrefour’s. Wal-Mart bought $ 18 billion in goods from Chinese manufacturers last year.
But as a retailer in China, Wal-Mart is a small fish. Its strategy of offering tian tian ping jia, or “everyday low prices,” hasn’t had a big effect on Chinese momand-pop shops that are used to cutthroat pricing. Wal-Mart has been unable to replicate its super-efficient logistics system in China largely because the system lacks scale.
Even Wal-Mart’s staunch anti-union stance is being challenged, ironically, in a country where unions have little power. Government-backed trade union officials in China have been trying to organize workers at foreign enterprises and have been especially critical of Wal-Mart’s resistance to the idea.
Wal-Mart beat Carrefour to China by a few months, sending executives to the Middle Kingdom in 1994. But it wasn’t until two years later that Wal-Mart opened its first supercenter, in Shenzhen, an industrial city that borders Hong Kong. After building a cluster of stores in China’s southeast, Wal-Mart started to push up the coast and sought to break into Shanghai.
But when it approached authorities, Beijing instead offered a license in Shenyang, in the gritty northeast region near North Korea, said Paul French, founder of Asia Access, a market research firm in Shanghai.
Shanghai officials didn’t go out of their way to help, either. Some grumbled that Wal-Mart waltzed into town and began pressing for favorable terms, playing one district government against another.
Carrefour, meanwhile, bypassed Beijing and cut deals directly with local governments. “They would go to the local mayor, the [Communist ] party guy and say, ‘ I’ll bring you a Carrefour store, pay taxes, create jobs, pay rent, ’” French said.
Local officials were thrilled. Beijing later caught on and slowed Carrefour’s growth, but by then the retailer had already locked up some of the best sites in cities such as Shanghai.
Wal-Mart opened its first store in Shanghai last year. Carrefour has been in the eastern metropolis since 1996 and has 10 stores in the city, one of China’s wealthiest.
More recently Shanghai and some other cities have made it tougher for big-box retailers to open stores in dense areas, in part to protect smaller businesses. In addition, the retailers, including Carrefour, Wal-Mart, Britain’s Tesco and Germany’s Metro, face increased scrutiny from regulatory agencies.
One of Carrefour’s Shanghai stores was fined almost $ 7, 000 for selling expired pork. Some other Carrefours got in trouble for marketing pirated World Cup soccer balls and fakes of a famous French brand, Louis Vuitton. Wal-Mart was forced to remove some children’s clothing after Chinese officials said the garments contained cancercausing dye.
“They have to show the world they are doing something,” said Jean Luc Chereau, Carrefour’s president in China, referring to the government’s tougher regulatory hand. Still, Chereau said, it won’t inhibit the company’s expansion, insisting that Carrefour had built good will with the central government, most recently by heeding Beijing’s call to go west and invest in places like Urumqi.
Chereau wouldn’t specify what he’d been promised in return, but hinted at licenses to open in large coastal areas.
“I played the game,” he said.
Carrefour has more international experience than Wal-Mart. The French company operates in 29 countries, about double the number for Wal-Mart. Both chains have struggled in Asia, however, pulling out of countries such as South Korea. And despite their push in China, Chinese retailers dominate.
The more stores it can open, the better the chance Wal-Mart can leverage its mass scale to squeeze prices lower and drive efficiencies in purchasing, inventory management and distribution.
But transportation experts say it will be a few years before Wal-Mart can transplant its famous logistics capability in the United States to China. At the moment, no national freight carrier exists in China. Instead, about 4 million businesses operate 5 million trucks. Delivery vehicles that make long trips must return to their base empty because of a lack of uniform regulation. Also, there’s no uniform system of tracking goods, issuing invoices or collecting payments by credit.
All of which plays more to Carrefour’s strengths.
“It’s highly fragmented, so we have to keep our flexibility,” said Christophe De Nays Candau, Carrefour’s supply chain manager in China.
He said he didn’t care what vehicle pulled into Carrefour’s receiving dock, as long as it got the job done. “We still use the bike if it’s the lowest cost and most efficient.”
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
