Tuesday, February 27, 2007
Wal-Mart invasion
Wal-Mart invasion
Known for low prices, employee mistreatment and grocery dominance, Wal-Mart is now taking foot in the most populous country in the world; China. The Chinese marketplace may be extremely different than that of the US but basic economics are universal. Low prices mean more customers.
Wal-Mart begins this invasion with the purchase of a 35 percent stake in Chinese super-center company Bounteous Company Ltd. Wal-Mart will also receive the option of acquiring a majority stake in the firm by 2010, making Wal-Mart the owner of the largest retailer in yet another country. Bounteous operates only 101 super-centers in 34 Chinese cities leaving much room for growth from both Wal-Mart and Trust-Mart, the company that is owned by Bounteous. These two labels may eventually cover China like Kmart and Wal-Mart did in the 90s prior to the crash of Kmart. It is this kind of competition that China currently lacks; perhaps Wal-Mart can bring the communist country to 21st century standards.
Either way, it is these emerging markets that are so important to Wal-Mart growth rates. US sales growth has been slowly because of over-saturation of Wal-Mart stores. Negative press has certainly been a factor too, not a day goes by that a story about the atrocities that occur in Wal-Mart’s human resources department is broadcasted. Total sales rose 10.9 percent to $98.9 Billion dollars. International sales rose 29.6 percent to $22.7 Billion while US sales increased 1.6 percent. 1.6% increase in sales hardly beat inflation, yet alone set record numbers.
The worldwide markets should prove to be very valuable terrain for such a slowing company. Wal-Mart might be finally showing its age with such low growth rates. International markets are a largely untapped resource for Wal-Mart, and a place to achieve growth rates needed to boost share prices. I see this acquisition playing a key role in Wal-Mart developing in the Asian market.