In 2015, retail giant Walmart made the news when it announced its plans to expand its operations in Asia by opening 115 new stores upgrade 50 existing outlets in China by 2017. The U.S.-based company has since opened stores in Shanghai, Beijing, Guangzhou, Shenzhen and Wuhan, among other top cities in the country.
According to Walmart CEO Doug McMillon, China is a key strategic market for the company, which is why Walmart will continue to increase its investment across its various business operations in the country. Its investment in the remodelling and upgrading of the existing stores prior to the expansion was reported to amount to 370 million yuan (close to £45 million). Let’s take a closer look at Walmart’s expansion in China and its implications for the global economy.
Walmart’s e-commerce tactics for China
Walmart opened its first superstore in China in 1996 in Shenzhen, one of the country’s wealthiest cities. It now operates in 117 cities and 25 provinces in the country, but things weren’t always sunny for the company.
In recent years, Walmart had been facing slow growth in China and had to close some underperforming stores. In February 2015, the company said its net sales in the country declined 0.7 percent for the quarter ending Jan. 31, while its same-store sales fell by 2.3 percent.
To tackle its slowdown, Walmart focused on online grocery shopping by encouraging customers to purchase through Yihaodian, its online grocery sales platform. Walmart first invested in the business-to-consumer platform in 2011, taking full ownership in 2015. From just 18,000 items offered for sale in 2011, Yihaodian counted more than 8 million products by the end of 2014.
In June 2016, Walmart sold Yihaodian to Chinese e-commerce firm JD.com, becoming a retailer inside the online marketplace instead of operating it entirely. It also obtained a 5-percent stake, which nearly doubled by October, growing to more than 9 percent.
A Walmart spokesperson said that its investment in JD, which includes the consolidation of its supply chains, is part of its expansion plans in China. The company believes that the strategic partnership with JD – one of the top two players in the Chinese e-commerce market, the other one being Alibaba – will help it grow e-commerce in the largest country in Asia.
E-commerce growth potential in China
With more than 1.3 billion people, China remains the world’s second-largest economy, next to the United States and a big step up from Japan, which comes in third. China’s massive consumer base makes it a top choice for companies seeking to expand, what with the seemingly limitless potential the country offers.
It’s not easy; even Walmart has had to struggle with the various obstacles – economic, political, cultural -that come with entering the Chinese market. However, once those difficulties are addressed, then things are bound to go uphill.
From what we can observe, aside from opening new stores, what global companies seeking to expand in China need to do is to have a hand in improving the country’s economic and technical infrastructure in the smaller cities to better support their business model. This is a must especially if global companies aim to get a bigger chunk of the Chinese e-commerce market. After all, the huge growth potential is there – it just needs to be effectively tapped into.