A Shanghai branch of Walmart. (File photo/Xinhua)
Walmart, the world's leading retailer, is to slow down the rate of opening new stores in China in 2012 and focus more on operational efficiency to lift its revenues. Other international retailers operating in China including Carrefour and Tesco are planning similar steps. The slowdown is expected to affect many of their Chinese suppliers.
The US-based company has adopted a plan of scaling down expansion to reduce new total store space by about 30% this year and give priority to laying stronger groundwork and enhancing customer experience.
Walmart generated global revenue of US$114.3 billion for the second quarter of 2012, slightly below analysts' projection of US$115.8 billion. The group continued to see healthy growth in operating profits while sales of its stores in both China and Brazil increased 5% from the same period of 2011.
However, the operating profit in the Chinese market inched up only slightly while the Brazilian market showed a tiny deficit. Walmart chief financial officer Charles Holley commented that the company is "obviously getting too ahead of itself."
Walmart picked up the pace of opening new stores in the Chinese market in the past three years, including 51 in 2009, more than double the number of 20 in the previous year. The retailer added 47 and 43 new stores respectively in 2010 and 2011, far ahead of the 25 stores opened by the French chain Carrefour and the 17 stores opened by Tesco of the UK.
Even the Taiwan-based RT-Mart chain could not match Walmart's expansion pace as it added 42 stores in 2011, a record high in the company's history, according to Guangzhou's Southern Metropolis Daily.
Among the top retailers operating in China, the average revenue at stores that have been open for at least one year reached 155 million yuan (US$24.4 million) in 2011 at Walmart, less than the 200 million yuan (US$31.5 million) recorded by some of its competitors, including Carrefour.
The overall market share of Walmart in China slipped to 7% in the second quarter from 7.8%, reported the newspaper.
One retail specialist in China said Walmart is slowing down its expansion because it has realized that the quality among the stores it has opened in the past two years is uneven. The company normally needs to study seven candidate sites for a store and then select the most suitable location. It is a highly strenuous task for Walmart staff in China to carefully study 350 possible sites when scouting for the best locations, he observed.
The design and layout of some new stores has also been compromised by the fast rate of expansion, causing inconveniences for many shoppers, he said.
Michael Duke, Walmart's president and CEO, acknowledged that there is a need for the company to raise sales and profits in China and other emerging markets while striking a balance between earnings and the pace of expansion.
Business sources said Walmart is expected to open fewer new stores this year after inaugurating 43 stores in 2011. The group opened just 10 new stores in China in the first half of this year.
The slowdown in expansion by Walmart and Carrefour is setting off a chain reaction affecting the business of affiliated sectors, including enterprises engaged in real estate development, building materials, construction, and product suppliers to the giant stores.
Meanwhile, some local retail chains have reported operating losses because of the slowdown in the country's economic growth.
Nevertheless, many retailers, including local operators and those from Hong Kong and Japan, are still planning to open more new discount stores and convenience stores in Guangzhou, a market generally considered to be saturated for retailers, as well as its neighboring cities.
An executive from a more aggressive retail company said he agrees with the view of the international investor Warren Buffett, who remains bullish on Walmart, that when shoppers cut their spending budget, they tend to make more purchases at giant retail chains that offer more competitive prices.