The beginning of spring 2005 must have left a mark on the corporate strategy of every retailer
vying for a share in China, the world’s most populous consumer market. From this time on,
foreign retailers were no longer constrained to specified regions, forced to enter into joint
ventures with local partners, or hampered by a lack of distribution rights—China’s retail
market had thawed and was laid open to all.
To the world’s largest retailer, Wal-Mart Stores, China had long been a strategic imperative.
On one hand, nearly US$20 billion worth of goods made in China were now travelling
through Wal-Mart’s global supply chain to drive its costs down; on the other hand, China’s
vast size ...view middle of the document...
06/297 Walmart Stores: Every Day Low Prices in China
importantly, whereas Carrefour had started generating positive returns from its stores in China,
the annual numbers sent back by Wal-Mart China to its home office in Arkansas, US
remained in the red. The fate of successfully duplicating its domestic business model in other
parts of the world was further shadowed by the company’s complete retreat from Germany in
2006 due to its failure to generate any profit after struggling bitterly for nearly a decade.
The Wal-Mart Way
From Backwater Retailer to the World’s Number One
The first Wal-Mart store was opened on July 2nd 1962 in Rogers, Arkansas by Sam Walton,2 a
44-year-old man from Oklahoma. Walton believed that the future of retailing lay in
discounting. To avoid head-on competition with giants such as Sears and Woolworths which
dominated big cities, Walton opened stores in “one-horse”, rural, backwater towns ignored by
other retailers. The stores aimed to serve customers who, up until then, had to travel long
distances to save money. Now they could buy the same goods cheaply at home. 3 This
positioning proved to be critical to Wal-Mart’s success in the years to come as it grew outside
competitors’ radar screens to a substantial size to command economies of scale.
When sceptics doubted the purchasing power of a small population to support a big store, a
retail miracle was in the making which would revolutionise the old, slumbering industry. In
the first year of operation, sales at Wal-Mart stores were US$975,000. Ten years later, when
the company was listed on the New York Stock Exchange in 1972, revenues had reached
US$78million. The public listing provided the company with ample resources to finance a
more rapid expansion, and by 1979 sales had surpassed US$1 billion. The powerful growth
engine seemed unstoppable. In 1990, the company topped the list of major retailers in the US.
And five years later, Wal-Mart stores could be found in all 50 American states, and in Mexico
and Canada. In 2002 it became the world’s largest company in terms of sales. On January 31st
2005, Wal-Mart Stores reported net sales of US$285 billion, had a presence in nine countries
with 5,289 stores and 1.6 million employees worldwide, offered multiple store formats
including discount stores, supercentres, warehouse stores and neighbourhood markets, and
was not only the largest company in the world but also the most admired company in the US
according to Fortune magazine 4 [see EXHIBIT 2 for a timeline of major milestones,
EXHIBIT 3 for a history of growth at Wal-Mart Stores and EXHIBIT 4 for store formats].
Many attributed Wal-Mart’s success to its well-known model of selling brand-name products
for less, but Wal-Mart’s founder and its executives did not invent the rules of discounting.
When Sam Walton opened the first store, this powerful idea had already been around, and had
attracted many players. Kmart and Woolco had...