How are Wal-Mart, Carrefour and Best Buy adapting to the chinese retail market

HOW WAL-MART, CARREFOUR AND BEST BUY ARE
ADAPTING TO THE CHINESE RETAIL MARKET
Sameer Mathur+ Cara Martow

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SameerMathur, Ph.D.
Assistant Professor (Marketing)
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Introduction
Faced with saturationin many of the developedmarkets, western retailers are looking for new places to grow.
Chinaoffers lucrative business opportunities to western retailers
Adaptingto this market is challenging but necessary.

Many Western retailers realize the potential of making money in an emerging market rather than the developed world

%
%
%
%
Source: Euromonitor

Overview of Retail Industry in China
The Chinese retail industry is highly fragmented, there is no “clear cut leader”, as they often are changing
In 2012, China is expected to have a retail market value surpassing $1.4 trillion USD
Continuous increases in personal disposable income and consumption (annual 10% growth rate)
Urbanization is a real and ongoing trend
Source: Euromonitor

China’s GDP increased 11.9% in 2010
Retail industry showing strong signs of growth after the economic recession
http://www.wtcbn.com/public/userfiles/ChinaRetailIndustry(1).pdf
http://www.thomaswhite.com/explore-the-world/bric-spotlight/2010/china-retail.aspx
Euromonitor international

Overview of Retail Industry in USA
slowly easing out of the economic recession
Real output of the retail industry is forecasted to reach to 1.8 trillion dollars, and add 1.6 million new jobs by 2014
the largest source of employment in the country
http://www.doleta.gov/brg/indprof/Retail_profile.cfm

Why global retailers want to enter China
All of these factors, along with a high population and rising GDP, make the Chinese retail market extremely attractive

Top Chain Retailers in China
1) Suning Appliance (156.2 billion RMB)
2) Gome Electrical Appliances (154.9 billion)
3) Brilliance Group (103.7 billion)
www.chinaretail.org

Foreign Retailers in China
Wal-Mart
Carrefour
IKEA
Best Buy
Nike
…etc.
http://www.wtcbn.com/public/userfiles/ChinaRetailIndustry(1).pdf

How are these foreign retailers doing in China compared to their operations in developed markets?

Case 1: Wal-Mart

Wal-Mart in China
Wal-Mart first entered China in 1996, and now operates over 333stores.
Wal-Mart is purchasing Chinese supermarket Trust-Mart in the 2011 fiscal year
http://www.wal-martchina.com/english/index.htm

Wal-Mart in China vs. Wal-Mart in US
1/3of Wal-Mart's sales are from International Markets
Operations in China account for only 3.36%of Wal-Mart's retail units (compared to the US’s 51.6%)
Wal-Mart’s Chinese operations account for $7.5 billionout of $420 billion in revenue

Source: Wal-Mart financial statements

While Wal-Mart does not yet have a strong foothold in China’s retail industry, it is showing signs of growth and potential with each passing year.
Euromonitor International : Country Market Insight

Market Shares are larger in Canada, but growth rates are slower
http://www.cnbc.com/id/41892621/Wal_Mart_Effect_Over_First_Market_Share_Loss_in_Decade

Many think that Wal-Mart has already reached its peak in the US, after its first market share loss in the 2009-2010 year.
http://www.cnbc.com/id/41892621/Wal_Mart_Effect_Over_First_Market_Share_Loss_in_Decade

Wal-Mart Brand Shares: % Value 2007-2010
In 2010, grocery retailing in China grew by 9%
Reached RMB3,168 billion
In 2010, grocery retailing in the US grew by 2%
Reached US$938 billion

With the saturated markets in the US, China has the most room for expansion.
“Brazil, Chinaand Mexico contributed some of the highest sales increases to Walmart International’s net sales growth in fiscal 2011.”
– 2011 Fiscal Report
This suggests that Wal-Mart needs to increasingly rely on foreign, emerging markets, in its quest for sustained growth and shareholder value

Wal-Mart: Adapting to the Chinese Market?
2) Hire locally:
99.9% of Wal-Mart China’s associates and all store managers are Chinese Nationals
1) Trust-Mart:
Wal-Mart China’s new smaller store format
“discount compact hypermarket”
This format is used to better serve smaller Chinese towns
http://newhope360.com/walmart-goes-small-china
http://www.wal-martchina.com/english/walmart/index.htm

3) Focus on China’s smaller cities
Why? Bigger cities such as Shangai, Beijing and Shenzhen have more competition and higher real estate prices.
The "small” cities are not in fact so small when considering China’s huge population of 1,331,460,000
http://articles.latimes.com/2008/oct/26/news/adfg-china26

4) Adapt merchandise
Wal-Mart China’s vegetable section is 2x that of the US. Changed merchandise to appeal to Chinese tastes (such as chicken feet and pork ribs)
5) Local Sourcing
The transportation system in China is poor, and there are government rules about local sourcing for certain products. Wal-Mart avoided many problems by sourcing locally.
http://www.towers.fr/essays/Wal-Mart%20a%20Glocalised%20company.pdf

Case 2: Best Buy

Best Buy in China
Best Buy entered China in 2006 and now operates about 160stores
Best Buy paid $180 million for “Five Star Appliance Co.”, an established Chinese electronic retailer.
In 2011, Best Buy decided to close it’s remaining stores that operate under the “Best Buy” brand, and expand its operations under “Five Star”
http://www.bloomberg.com/news/2011-02-22/best-buy-s-china-stores-shut-as-retailer-focuses-on-more-profitable-brand.html
Best Buy Financial Statments

Best Buy’s “Five Star Appliance” competesdirectly with the Chinese brands Gome Electrical Appliances Holding Ltd and Suning Appliance Co.
VS
&
160 stores
7 provinces
704 stores
200 cities
1206 stores
223 cities
Best Buy Financial Statments

Globally, Best Buy has more market share than its Chinese rivals GOME and Suning…
Source: Euromonitor

…while within China, GOME and Suning are in the lead. Independent stores make up 84% of sales, and therefore competition is fierce.
2010 Electronics and Appliance Leaders in China
Source: euromonitor international

Best Buy in China vs. Best Buy in US
Chinese operations contributed about 1.7 billion dollars of revenue to the total amount of 50 billion dollars.
http://www.reuters.com/article/2011/03/08/us-bestbuy-idUSTRE72711920110308

"But it's growing fast, I would love it (China's contribution) to be 15 percent of our operating profit in five years. And in 10 years, I would love it to be 50 percent. This is our ambition.”
Best Buy Asia President Kal Patel

Best Buy’s US operations are clearly lagging behind it’s international locations.
In it’s 2012 guidance summary, Best Buy said that it plans on slowing US expansion of the large retail stores.
6 months ended August 28th 2010
http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-newsArticle&id=1470753

In the US, with each new store, Best-Buy is experiencing diminishing marginal returns. They have over 1,100 stores spread across the country.
Where are they experiencing growth?
In China, the UK, and Canada
Source: Euromonitor

Best Buy: Adapting to the Chinese Market
Best Buy made a few mistakes upon entering the Chinese market but are now adapting their operations to better fit China’s consumer needs. Theirconventional business model was not very successful, but after discontinuing their brand name “Best Buy” they are now moving forward with “Five Star”

At a traditional Best Buy store In the US….
People like knowledgeable experts to help them make purchase decisions.
Best Buy carefully chooses only the best products to sell in their store.
Workers do not work on commission, and are therefore unbiased in helping customers
… BUT this is not the case for the Chinese market…
http://www.beijingtoday.com.cn/business/best-buys-lesson-from-china-cluttered-beats-curated
http://themarketplaceoflife.blogspot.com/2011/02/best-buys-success-in-china.html

In China:
Consumers aren't asfocused on having a “ pleasant shopping experience”, they just want the lowest price possible.
Workers prefer to work on commission to promote competition
Best Buy China has a few neutral employees walk around to answer questions.
Best Buy lets each manufacturer have a concession to run and stock.
http://www.beijingtoday.com.cn/business/best-buys-lesson-from-china-cluttered-beats-curated
http://themarketplaceoflife.blogspot.com/2011/02/best-buys-success-in-china.html

Case 3: Carrefour

Carrefour in China
Carrefour, a French retailer, entered China in 1995 and is now the leading foreign retailer in China. It is also the second largest retailer in the world, right behind Wal-Mart.
They operate about 175 hypermarkets and 425 discounters in 40 Chinese cities.

Carrefour in China vs. Carrefour in France
In the first quarter of 2011…
SALES ROSE BY 18%
REACHED €1.6 BILLION
SALES ROSE BY 1.3%
REACHED €9.9 BILLION
http://www.marketwatch.com/story/carrefour-sales-rise-on-brazil-china-growth-2011-04-14

Carrefour Hypermarket in China
Net sales grew by 15.66%
Outlets increased by 21.12%
Source: Euromonitor

Similar to Wal-Mart and Best Buy, Carrefour too earns the majority of it’s revenue in developed markets, but is seeing much higher growth rates in China.

Carrefour has run into various problems along the way, including price fraud accusations and failed Carrefour locations.
Yet they still remained China’s 6th largest retailer in 2010. They have become a huge icon.
Real estate near Carrefour stores have even begun charging a higher premium.
http://www.thejakartaglobe.com/business/carrefour-faces-tough-times-in-china/422439
Euromonitor

Adapting to the Chinese Market
2) Carrefour made sure to spread out all of it’s stores to reach the largest customer base and create a strong country-wide presence.
1) Carrefour uses both company run stores as well as franchised stores to cater to individual tastes for each geographic area
Source: Euromonitor

3) Carrefour has it’s own private labels for various products, and therefore can charge lower prices to appeal to the price-conscious Chinese consumer.
Source: Euromonitor

In Conclusion
The retail market in China is becoming extremely attractive, and competition is getting very fierce.
While Wal-Mart, Best Buy, Carrefour, earn more sales in developed markets, the Chinese market has a higher level of growth.
These Western retailers are continuously adapting, in order to succeed in emerging markets.

FREE TEACHING
RESOURCES
ON MARKETING
MANAGEMENTATWWW.SMATHUR.COM
OVER 130,000 VIEWS
FROM 96DIFFERENT COUNTRIES
These presentations are part of Sameer Mathur's teaching portfolio.
They are free to view or download for non-profit, academic use.
Disclaimer: These teaching materials have been compiled from multiple, non-creditedsources for non-profit, academic use. Copyright is retained by the original content creators.
SameerMathur, Ph.D.
Facebook:Click Here

READ THE
COMPLETE
ARTICLE AT:WWW.BUDDINGMARKETS.COM
SameerMathur, Ph.D.
Facebook:Click Here

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How are Wal-Mart, Carrefour and Best Buy adapting to the chinese retail market

by Sameer Mathur on Jun 03, 2011

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