Chinese Aisles

According to the May 19^th Economist Article, “All Eyes on Chinese Aisles”, no company currently servicing the booming Chinese retail market has or will emerge as a clear leader, or even key player.  Wal-Mart currently fights the retail battle with well-known international players such as Carrefour and Tesco, as well as successful local players like Wumart (clever name) and Shanghai Bailian.  Yet local and national chains alike remain lost in the scuffle of “Everyday Low Prices” with no indication of which will emerge as the prime location at which the rapidly growing Chinese economy will choose to shop.

While the current trends, or more appropriately lack thereof, in retail market leadership is clear, Wal-Mart seems to have half of the puzzle figured out.  With a little bit more focus on the correct balancing act of “glocalization”, Wal-Mart could indeed emerge as an industry leader in the exciting Chinese retail segment.

Although the Arkansas-based giant has been known to be a bit of a dud (in the author’s opinion) in some of its international exploits and has gotten a bad rap at home for some of its business practices, it has done a few things right in China which should be commended.  First, it took an experimental approach to market entry, trying out a number of different store formats, playing with different target customer segments and varying its merchandise mix.  This “fail-fast” approach helped Wal-Mart mitigate large scale mistakes as it expanded stores and continued investments.  Further, business risk was lowered by its entry mode choice as a joint venture with government-backed investment firms.

Wal-Mart displayed foresight in its human capital plan for China as well. Each store is managed by a local Chinese and early plans included development of management personnel with a 2-3 year growth forecast in mind.  By leveraging local talent, Wal-Mart has been able to quickly assimilate best practices and cultural preferences unique to the Chinese consumer.  Most surprising is Wal-Mart’s acquiescence to local labor relations, with relatively high wages (versus factory jobs), medical and retirement benefits and the notoriously non-union company’s tolerance of Chinese Union activity.

Wal-Mart stores in China are well-lit, relatively well laid out, safe and clean; a stark contrast to the shabby décor, lack of aesthetic elements and lack of food safety precautions prevalent at the Wumart stores and other local vendors.   

The customer service experience is high by local standards, however distinctly American with Employee of the Month displays, English and Chinese characters on signage and American Names on badges.

So with all of this localized knowledge, trained management in the pipeline, positive atmosphere and quality service, why is the company stuck at only around 6% of retail market share?

I believe the answer lies in Wal-Mart’s “straddling the fence” a bit too much in its glocalization behavior, resulting in what I call “glo-confusion.”  Is Wal-Mart an American entity operating in China? Or an integrated Chinese retailer with American roots?  No one, most of all Wal-Mart, seems to know.

Let’s think about what Wal-Mart does REALLY well…distribution.  Solidly building and leveraging this capability in China with local products and suppliers would allow it to not only have the right products at the right time in China, but could also be used to augment its home-base operations with new suppliers of low-cost merchandise.  Also, Wal-Mart could take the UPS approach and utilize its strengths and spare capacity as a value-added service to others in the Chinese market – an opportunity to not only build strategic alliances, but also indirectly market the brand.  Think of Wal-Mart branded vehicles delivering valued services to regional entities and augmenting profitability at the same time.

Next, we need to think about what value proposition Wal-Mart is delivering.  In the US, the experience is focused on low prices, decent selection and the one-stop shopping approach, “buy bulk”.  In China, consumers are looking for something different.  They tend to shop more frequently (versus the once weekly trek, braving the inevitable crowds of time-crunched families to “stock up”, common to US consumers.)  They want either dirt cheap functionality OR competitive prices at a (very) slight premium for perceived quality and an EXPERIENCE – called Retailtainment in the industry.  Given Wal-Mart’s reach and scope combined with a low cost labor force and fierce price competition, the latter seems the more appropriate differentiation approach in China.  For example, instead of presenting hangers of clothes, Wal-Mart could include customers in a fashion show highlighting local and international styles.  Food and beverage displays could be integrated into sampling and/or learning opportunities.  Opportunities for relaxation, i.e. book lounges and coffee shops a la Starbucks as well as adjacent services such as pharmacy, medical and banking services could be integrated into the store’s offering enticing customers to return again and again. 

Last in our Wal-Mart opportunities list is the possibility of encouraging the Chinese consumers’ habits of small, high frequency purchase occasions.  By scaling stores down slightly and offering smaller size/quantity items of equivalent variety, the organization could save on high cost retail space, entice consumers into more frequent interactions and court members at lower income levels into a relationship.  In this way, the retailer can firmly entrench itself into the life of the Chinese consumer and profitably ride the wave of incredible growth set to catapult China into the fastest-growing and one day largest retail market in the world.