• search

Wal-Mart takes its China lessons to India

Written by: Staff
|

Shenzhen (China), Mar 27: When Wal-Mart Stores Inc. opened its first store in Shenzhen a decade ago, the local newspaper headline proclaimed, ''The Wolf is Coming.'' The world's biggest retailer has not exactly devoured China's retail sector since then, opening just 56 stores, but it has learned a few lessons that may prove useful for its next major project, India.

''China and India really represent the future of Wal-Mart,'' Joe Hatfield, chief executive officer for Wal-Mart Asia, told Reuters in Shenzhen, the retailer's China headquarters.

Foreign retailers are not permitted to directly invest in India's retail sector, but they have been lobbying hard for a change to those rules.

Analysts say that will likely happen within a year or two.

Wal-Mart's opponents in India fear the ''wolf'' would demolish competitors and drive up unemployment in a country already struggling to feed and house its one billion citizens.

But Wal-Mart believes India, like China before it, will embrace Western retailers. The key is to show an understanding of local tastes, whether that means stocking popular spices, the right baked goods, or just the top-selling brand of soap.

Easier said than done.

In China, Wal-Mart tried to sell paint, something that works well in the United States. But customers weren't used to buying paint and food from the same place, and Wal-Mart eventually stopped carrying it.

Analysts and economists in India say the retail sector and its supply chain are in dire need of modernisation. India's farm goods typically pass through six or seven intermediaries before reaching consumers, and some 40 percent of produce spoils along the way.

'STEAL SHAMELESSLY'

Wall Street is eager for signs Wal-Mart is making progress in China and India at a time when growth at home is sluggish.

The United States accounts for about 80 percent of Wal-Mart's annual sales, which topped 2 billion in the latest fiscal year, but rival Target Corp. has posted faster sales growth in recent quarters.

Investors have noticed. Target's shares are up more than 6 percent over the past year, and trade at 17.2 times analysts' profit forecasts for the current year, according to Reuters Estimates. Wal-Mart's stock has fallen about 5 percent in that time, and is valued at 16.5 times earnings.

Wal-Mart has already taken steps to prepare for India. The retailer has applied to open a liaison office in Bangalore to study the market, and recently hired a head of Asian strategy who will oversee expansion in India, among other things.

Wal-Mart Vice Chairman Mike Duke met Indian officials earlier in March, marking the retailer's second round of high-level talks in less than a year.

Hatfield himself may be one of the best resources. He opened Wal-Mart's China operations in 1994, so he is well aware of the potential pitfalls in a developing economy.

His best advice? ''Steal shamelessly,'' Hatfield said, quoting from Wal-Mart founder Sam Walton, who routinely visited competitors' stores to get new ideas.

He spent his first months in China walking around and talking to shopkeepers about which items sold well.

In China, Wal-Mart got off to a slow start, and trails rivals such as France's Carrefour , which did a better job of adapting stores to meet local tastes.

Hatfield says it is unlikely he will be in charge of Wal-Mart's India business, because a major China expansion will keep him busy. But he has some ideas about how a Wal-Mart store in India should look.

For starters, it should have an expansive spice section, where employees can custom grind orders while shoppers wait. It would also boast a large bakery section.

In India, as in China, few households have ovens, so baked goods must be purchased.

Stores would probably be smaller than they are in China, no more than 140,000 square feet, instead of the 200,000 square-foot supercenters in China and the United States.

WHERE TO GO?

Figuring out what to put on the shelves is one thing, the bigger task will be figuring out where to put the stores.

Analysts in India say it will be tough for Wal-Mart to get into the mega-cities such as New Delhi or Mumbai, where real estate is pricey and large parcels of land are hard to come by.

Severe traffic congestion will also be a problem. How many shoppers will be willing to brave hours in a car just to visit a Wal-Mart store, particularly when a multitude of small, corner shops offer convenience and service? Millions of those small stores currently account for some 97 percent of India's retail market. Most of them accept telephone orders and will deliver to homes.

Raman Mangalorkar, a principal with consulting firm A.T.

Kearney in Mumbai, said small, corner shops will survive because of the convenience factor, but some will need to change their merchandise offerings to compete.

''They'll have to evolve, just like they've done in China,'' he said. ''They will cater to needs that are not being served by the Wal-Marts and Carrefours.'' Mangalorkar, whose firm ranks India number one on its annual list of the top markets for international retail expansion, said he would advise foreign retailers to focus on the second-tier cities such as Lucknow.

Hatfield said Wal-Mart was interested in cities both large and small. He said his strategy would be to make a big splash early on, opening 12 to 18 stores in the first 18 months, to show consumers that Wal-Mart was committed to India.

REUTERS

For Daily Alerts
Get Instant News Updates
Enable
x
Notification Settings X
Time Settings
Done
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X
We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Oneindia sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Oneindia website. However, you can change your cookie settings at any time. Learn more