China Herald: Why Wal-Mart loses in China

A typical Wal-Mart discount department store i...

Big store in China are not cheap via Wikipedia

Top management of Wal-Mart in China is leaving 'for personal reasons', signalling all is not well at the major retailer. Shaun Rein explains in CNBC why the US firm loses market share in China and how it can rethink its strategy.

Wal-Mart has lost market share from 8 to 5.5 percent, according to Shaun Rein's China Market Research Group:

Wal-Mart made the mistake of leaning too heavily on the big box retailer format like in the U.S., rather than smaller, conveniently located retail outlets. Expecting China to develop the same way towards big box retailing, as America did, is the same mistake Home Depot [HD 34.77 0.24 (+0.7%) ] and Best Buy [BBY 31.54 0.53 (+1.71%) ] made. Both of those retailers ultimately retreated from the market. China may have high compound annual revenue growth rates, but traffic and the lack of free parking means consumers often prefer to shop in neighborhood stores. A government ban on free plastic shopping bags has also resulted in consumers shopping more often, and buying less each time, further fueling the popularity of stores closer to home...

Wal-Mart surprisingly has struggled with consumer perception and their branding. They espouse the 'everyday low price' concept, yet are positioned relatively high in the market when compared to street vendors that are truly low price. Our research suggests that the consumers who spend the most at Wal-Mart and account for most of their revenue tend to be upwardly mobile, middle class, or wealthy. They are not looking at Wal-Mart as a low price destination but rather as a location where they can buy safe, high-quality products...

Rising costs and more demanding consumers are changing the retail landscape in China. Wal-Mart needs to adjust its strategy by shrinking the size and locations of its stores, going upscale in product selection and ambiance, and by differentiating its product lines. Unless it does that, Wal-Mart might end up another casualty of the fast growth but hard to win Chinese retail market.

Shaun Rein