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Wal-Mart Plans to Spread in China

Zacks Equity Research

Leading retailer, Wal-Mart Stores, Inc. (WMT), is geared to expand into the fast-growing market of China. It plans to open more than 100 facilities in the country between 2014 and 2016, which will create approximately 19,000 retail jobs.

Wal-Mart further plans to aid the urbanization of the tier-two, tier-three and tier-four cities of China. The company will thus be able to create demand for its goods while serving the customers better. Moreover, Wal-Mart will be able to lower its cost of sales by utilizing the cheap labor of the country.

Wal-Mart plans to focus mainly on its Supercenters and Sam’s Clubs, and has undertaken a major remodeling plan that includes revamping about 45 stores in 2013, 55 stores in 2014 and 65 stores in 2016. The retailer also plans to shut down approximately 9% of its stores, which were underperforming recently.

Wal-Mart also plans to invest in distribution networks and upgrade its warehouses in an effort to augment food safety and reduce costs.

China is a strategic market for Wal-Mart as the global chain is facing difficult retail environment in the U.S. Wal-Mart entered China in 1996 with its Supercenter and Sam’s Club in Shenzhen. However, it has not been able to gain market share in the country, as it is facing stiff competition from several local players.

Although the low price business model was a big hit in the U.S., the retailer has not been able to set a firm foot in the Chinese market as consumers look for cheaper deals online and in local retail shops. Wal-Mart is facing difficult retail conditions in the country following the recent slowdown of the economy’s growth. Moreover, amid several legal issues, the grocery giant also had to part ways with its Indian joint venture partner, Bharti Enterprises.

In such a situation, the investment in China is particularly significant as it may help Wal-Mart capture the world’s second largest economy. Walmart had plans to open 100 stores in China by 2015. The retailer will further try to adapt to the changing Chinese landscape by upgrading its merchandise, operations and customer experience.

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