Walmart China Presentation

Walmart In China

Agenda

•Introduction

•Industry Comparison

•Key Issues

•Analysis

•Conclusion

Introduction

•Founded in US in 1960

•Fortune 500 company with 8400 units in 15 countries

•$300+ billion in revenues

Walmart Global

Walmart China

•First store in 1996 in Shenzhen

•Currently operates 189 units + 100 Trust -Marts in

101 cities

•95% of the merchandise is sourced locally

Walmart

US

Walmart

China

Carrefour

China

Distribution x

E.D.L.P x x

Market Power x x

Location

Power

Govt. Relation x

Walmart US Vs Walmart China

Vs Carrefour China

Target Customer

Distribution Centre

Key Issues

•What to Sell

•How to Sell

•Sell to Whom

•Foresight

•Signaling

Going local: Why Selling Crocodiles is key to Walmart’s success.

• Grocery section accounts for more than half at

Chinese hypermarkets

0%

20%

40%

60%

80%

100%

Wal-mart US Chinese Hypermarkets

31% 55%

69% 45%

The others

Grocery

Source: Walmart Stores Inc. 2006 10-K Report; China Retail Annual Report

Percentage of Sales by Product

Category

What to Sell?

Pig faces

Turtles

Crocodiles

Assorted Dried Reptiles

Example

Targeting Quality: Why you can bring Walmart to your wedding in

China.

• Does EDLP work in China?

• Chinese middle-class are willing to pay for quality

– Better understanding of local market

– Backed by Deloitte report

– Food safety crisis in China

• Multi-national big names mean higher quality

in Chinese mindset

How to Sell: Quality over Price

• Local community stores have cost advantages

• MNC strategies

Example

US Pizza Hut Chinese Pizza Hut

Vertical Differentiation: Where would Goldilocks shop?

Vertical Differentiation: occurs in a market where several

goods can be ordered according to their objective quality

from lowest to highest

Sell to Whom

Example:

Vertical Differentiation

•Combines full line of groceries, general merchandise

and bulk quantities

•Consumer target: Upper class

•Differentiation: requires membership, offers higher end products at higher prices, delivery service available

•Combines full line of groceries and general merchandise

•Consumer target: Middle-Upper

•Differentiation: offers huge variety of good quality

products at generally medium-high prices

•Offers various commodities, including food, home

appliance, textile and garments

•Consumer target: Middle class

•Differentiation: offers quality products at cheaper prices

Distribution: Why Walmart

Planned to Lose Money?

Walmart China replicated its US distribution center model building a center in Shenzhen in 1996 and Tianjin in 2003.

However, Walmart’s distribution centers didn’t keep costs down compared to decentralized local distribution.

Key problems:

• Road infrastructure in China

• IT systems of suppliers

• Insufficient scale of stores

• Interprovincial ‘corruption’

• Local food distribution still required

The Problem

Foresight:

Long-Run Success

How did the IT infrastructure in China grow?

0

50

100

150

200

250

300

350

400

450

00 01 02 03 04 05 06 07 08 09 10

# Internet Users in China

How did the scale of Walmart’s operations grow?

Why did Walmart not wait until the infrastructure was

ready to build their distribution centers?

Foresight:

Long-Run Success

1996 2005 2011

# Stores 2 43 >300

How does signaling work?

What does building distribution centers signal?

• Long-run commitment to China market

• Store expansion in nearby regions

Signaling:

The Role of Sunk Costs

Was it successful in scaring off competitors?

SHENZHEN TIANJIN

Why was it more successful in Shenzhen than Tianjin?

• Timing – Shenzhen distribution center was built

much earlier (1996 vs. 2003).

• Credibility

Signaling:

Success vs. Failure

Southern Stores

2005 2011

Walmart 20 73 (+39)

Carrefour 13 38

N & NE Stores

2005 2011

Walmart 20 37 (+7)

Carrefour 25 54

Believed they would be successful in the long-run and

give them competitive advantage.

Signal commitment to store expansion, which could

scare off competitors in that region by changing

payoffs, and China market.

Summary: Why Walmart

Built Distribution Centers

Application: The Role of

Sunk Costs

• Knowledge is power

• Position correctly

• Signaling

• Distribution network is key for an aggressive growth strategy

• Must anticipate where future demand will be greatest when deciding store location

• Western retail - Chinese style

Conclusion