Wal-Mart Sees Amping Up Efforts to Open More China Sam’s Club Warehouses

Wal-Mart Sees Amping Up Efforts to Open More China Sam’s Club Warehouses

Retailer Looks to Open 10 New Stores Per Year in China in Six to Seven Years

LAURIE BURKITT

Dec. 18, 2013 6:59 a.m. ET

BEIJING— Greg Foran sees a solution to Wal-Mart Stores Inc. WMT -0.03% ‘s China woes in $11 pallets of bottled water and $8 half-kilogram (1.1 pound) bags of dried plums.Wal-Mart’s China chief executive is looking to shake up operations in one of its toughest markets with an amped-up effort to sell Sam’s Club warehouses to Chinese, among other measures. So far, the Bentonville, Ark., retailer has focused mostly on rolling out Wal-Mart-branded stores.

There are 550 Sam’s Club stores in the U.S. and 300 million people, said Mr. Foran, speaking to reporters on Wednesday. “There are 10 Sam’s Clubs here,” he said, with 1.34 billion people and few rivals in the space. Wal-Mart will open two more Sam’s outlets in China in 2014, but he hopes to boost the rate of growth each year after until it reaches 10 new stores per year in six to seven years.

He also wants to slash prices online to better compete, increase up the selection of imports and private-label goods and watch for potential deals.

Mr. Foran, who was named president and chief executive of Wal-Mart’s China division in February 2012, is contending with rising competition and China’s increasingly Internet-savvy customers. Industry experts say that Mr. Foran will come under pressure as his honeymoon period comes to an end.

“Wal-Mart is here for the long haul, but in the short term there is a lot of pressure from other retailers, so executives need to make changes that will improve the company’s bottom line,” said Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group.

“To be honest with you, for the first year a lot of my attention and a lot of my team’s attention has been focused on just getting the foundation fixed,” Mr. Foran said, adding, “We’re now at a point where we can say, ‘let’s sensibly start to go’.”

Experts say Wal-Mart’s attempt to market itself as a retailer that offers the lowest prices hasn’t taken hold in China and local rivals have stepped up their game in recent years, outpacing Wal-Mart by sales and number of stores.

Wal-Mart doesn’t disclose China-specific results.

Sun Art Retail Group Ltd. 6808.HK -1.98% , a joint venture between Taiwanese conglomerate Ruentex Industries Ltd. 2915.TW +1.71% and France’s Groupe Auchan SA, is No. 1 by market share for hypermarkets in China, with 13.6% in 2012. Wal-Mart, which shares the No. 2 spot with local rival China Resources Enterprise Ltd. 0291.HK -1.16%with a 10.9% share, had a share of 11.3% in 2010. Hypermarkets sell both groceries as well as apparel and household goods.

Mr. Foran succeeded Ed Chan, who the company said in October 2011 resigned for personal reasons. Mr. Chan oversaw an expansion that took Wal-Mart to 353 China stores from about 70 in 2006. But it reported a quarterly loss it wouldn’t specify for China in the summer of 2011, and endured the temporary closure of its 13 stores in the southwestern city of Chongqing following a pricing probe there. The retailer said it has implemented a new international compliance structure.

Mr. Fran said Sam’s Club is gaining traction with Chinese consumers who will pay an annual membership fee of 150 yuan to get deals on products such as 100-inch flat-screen TV’s for 29,999 yuan or Levi’s jeans sold for just over 300 yuan, half the price of other retailers.

Focusing on Sam’s will help offset a traffic decline that has consistently hit Wal-Mart’s China stores in the last several years, as Sam’s is bucking the traffic trend, Mr. Foran said. He declined to disclose figures or Sam’s sales in China, adding the club is successful in China.

At a Sam’s club on the outskirts of Beijing, the average ticket per shopper is 350 yuan to 500 yuan, or roughly between $58-$83, Mr. Foran said. To entice shoppers to put more in their baskets, Sam’s is expanding its imported products fivefold next year, he said, though he didn’t provide a base figure. Mr. Foran said he is ensuring that the company stocks up on products like air purifiers for China’s polluted air that sell for more than 6,000 yuan. More than 100 fly off the shelves in a single club in Beijing per day, he said.

Mr. Foran cautioned the Sam’s expansion will take time. “We’re putting a lot of energy into Sam’s but these are big aircraft carriers and you’ve got to be careful about where you locate them and how you locate them. You’ve got to get your merchandise right,” he said.

Wal-Mart’s private label goods, which accounts for as much as 50% of sales in the U.K. but in China accounts for 1% of Wal-Mart and Sam’s sales are also going to become a bigger focus, Mr. Foran said, adding that in the next seven to 10 years, he aims to increase the number to 20%.

Online, rivals such as Alibaba Group’s Taobao.com and Jingdong Century Trading Co.’s 360buy.com dominate. But Mr. Foran said he has a plan, aiming to increase efficiency so that he can slash the prices of products sold on its Yihaodian online platform. It bought a 51% stake in 2012.

Mr. Foran said he is planning to make it easier for shoppers to blend their online and offline shopping, helping them compare prices from both and pick up their online purchases in stores. He said he can imagine a day when there are pickup lockers at Wal-Mart and shopping carts that are equipped with smartphones or other devices.

“The prize for getting this right will be significant,” he said.