Wal-Mart is Considering Acquisitions in China; The retailer, which has 398 stores in China, is No. 2 in market share here, behind Sun Art; Wal-Mart’s low-price business model isn’t catching on with Chinese consumers, many of whom prefer to shop for bargains online and in mom-and-pop stores

October 5, 2013, 7:11 a.m. ET

Wal-Mart Looks to Gain Ground in Asia

U.S. Retailer is Considering Acquisitions in China

LAURIE BURKITT

BEIJING—Wal-Mart Stores Inc.’s WMT -0.49% top executive for Asia said the company has revamped its practices and legal compliance in the region and is considering acquisitions in China, as the retailer faces headwinds in a cornerstone of its global expansion plans. Wal-Mart’s sourcing practices in Bangladesh have been under a microscope after safety problems emerged at some factories there. The company also faces a stagnant economy in Japan, government restrictions and scrutiny in India and slowing traffic and stronger rivals in China. In other regions—such as Brazil, where Wal-Mart has about 570 stores—the company has expanded more rapidly.Still, the Bentonville, Ark., retailer is hopeful about tackling challenges in Asia and gaining ground, said Scott Price, the chief executive of Wal-Mart’s Asia division.

The company hasn’t felt a lingering impact from the April collapse of a Bangladesh factory in which 430 people were killed, he said Saturday from the Asia Pacific Economic Cooperation conference in Bali, Indonesia. Wal-Mart was a customer of a company using the factory, though the retailer said it hadn’t authorized suppliers to use the facility.

“We’ve been working on creating safe working facilities rather than looking for a different sourcing environment,” Mr. Price said.

Regarding Japan, he said that same-store sales, those at stores that have been open at least a year, have increased for four consecutive years.

Meanwhile, Wal-Mart is considering acquisitions in China, aiming to build its market share in cities where Wal-Mart isn’t already the No. 1 or No. 2 player, Mr. Price said.

“A year ago in China, I wasn’t happy with where we were, but I feel different now,” he said. Nearly three dozen employees were arrested or detained in Chongqing in late 2011 over alleged mislabeling of ordinary pork sold as a more expensive organic variety. Wal-Mart apologized and said it would revamp its practices.

Mr. Price declined to disclose details about regions or potential companies that Wal-Mart would acquire but said the retailer would consider deals with foreign companies.

Wal-Mart’s China division has a stronger compliance system and a new management team this year, Mr. Price said. Its online arm, Yihaodian, in which Wal-Mart bought a 51% stake last year, has 24 million users, double from last year, Mr. Price said.

The retailer, which has 398 stores in China, is No. 2 in market share here, behind China-based Sun Art Retail Group Ltd. 6808.HK +0.52% Sun Art, a joint venture of Taiwanese conglomerate Ruentex Industries Ltd. 2915.TW -0.66% and France’s Groupe Auchan SA, has 284 stores in China.

People in the industry say Wal-Mart’s low-price business model isn’t catching on with Chinese consumers, many of whom prefer to shop for bargains online and in mom-and-pop stores. Wal-Mart’s same-store sales rose 2.5% in the second quarter from a year earlier, while the number of transactions fell 6.8%.

Chinese consumers also expect foreign retailers to offer the highest-quality shopping environments, but Wal-Mart’s stores look like lean warehouses in comparison with those of domestic rivals, said Shaun Rein, founder of Shanghai-based consulting firm China Market Research Group.

“A decade ago, when Wal-Mart moved into a Chinese city, consumers acted like they were getting an Apple store. They were excited because they were getting a brand they saw as upscale, not cheap,” he said.

Mr. Price said Wal-Mart is working to establish itself as having the lowest prices and checks a two-kilometer (1.25-mile) radius of its stores to ensure it offers the lowest prices on 500 key items.

He said the company is investing 500 million yuan ($82 million) to upgrade Chinese stores.

Wal-Mart, the world’s largest retailer by sales, in November disclosed that it is investigating possible violations of U.S. antibribery law in India, China, Mexico and Brazil. The company hasn’t been charged. Mr. Price declined to disclose details of the investigations.

In India, Wal-Mart has struggled to open new stores under its wholesale venture with Bharti Enterprises Ltd. and opened only five stores last year.

The Indian government has been probing allegations by a lawmaker that Wal-Mart violated foreign-investment rules by investing in a domestic supermarket chain. Mr. Price said Wal-Mart was unaware of a Reserve Bank of India rule change and is working to resolve the issue.

Mr. Price said Wal-Mart has held back from further investment in India because regulations still favor domestic businesses. Although India said last year that it would allow foreign operators to invest in Indian supermarkets, Wal-Mart hasn’t yet filed an application.

“All we ask for in any market where we invest is a level playing field,” Mr. Price said.

Wal-Mart’s sales from its international division reached $32.96 billion in the quarter through July, up 2.9% from a year earlier. Its U.S. sales reached $68.73 billion, up 2.1%. The company doesn’t break out its sales by country.