Wal-Mart plan to cut costs in China raises concerns

While Wal-Mart is showing no signs of scaling back its Chinese operation – it already has 144 stores there and will open a further 23 by the end of the first quarter of this year – the move has led to fears about how foreign retailers are faring in the country.

China has been characterised by a period of rapid expansion followed by several years of slower growth, but it has yet to feel the full brunt of the global recession. Planet Retail senior analyst Rob Gregory said: “Some retailers have been hit by start-up and land costs increasing so have slowed down but the majority still believe it is a growth market.”

Wal-Mart’s global sales have suffered – predominantly due to the US recession – but the retailer still says markets such as China, Brazil and Mexico are showing robust growth. Similarly, this week Tesco reported sales in Asia up 20 per cent at constant exchange rates, buoyed by strong growth in Thailand and Malaysia.

Gregory said: “It would be surprising if growth did stop in China as it has huge potential. It will inevitably slow down because of the global recession but there are still opportunities.”

The mood is not as upbeat in the DIY sector. British retailer B&Q and US retailer Home Depot are finding China tough because of the slump in the property market. The Chinese have not fully embraced the do-it-yourself concept and the sector is also extremely fragmented.

B&Q is closing 22 of its 63 stores in the country and said some of its stores are too big. It is seeking other retailers to rent the extra space. The retailer insisted that it is committed to China and has embarked on a 10-year growth plan in the country.

Home Depot has also been honest about the fact it has not yet got its China business model right but remains confident of the country’s potential.

MHE chairman Edward Whitefield said: “China is still growing and the situation with DIY is not an indication of the whole market. Some of the DIY retailers misunderstood the Chinese consumer. But for grocers such as Wal-Mart, they are just being cautious because of the global economy. China will start to accelerate again next year.”