The world’s largest retailer, Wal-Mart, is struggling in its domestic and international markets alike
The world’s largest retailer, Wal-Mart, is struggling in its domestic and international markets alike. While sluggish consumer confidence and self-cannibalization have troubled the retailer in the U.S., international regions have had their specific problems. Although the company has done well in Mexico and Brazil in the past, it never gained any significant momentum in the world’s second largest economy, China.
Even after 18 years of operation, Wal-Mart’s Chinese business has grown to just 405 stores. The retailer has had problems in understanding discerning Chinese consumers as their buying decisions aren’t always price driven. They are more inclined towards tailor-made products and a shopping environment that reflects local preferences. While Wal-Mart’s strategies to adapt to local tastes haven’t been fruitful, local retail chain Sun-Art retail group has been extremely successful. Its imitation of Wal-Mart’s business model and better understanding of consumer behavior have helped it win Wal-Mart’s customers. Although China doesn’t contribute much to Wal-Mart’s revenues, the market is of vital importance to the company from long term perspective. The retailer is missing out on a substantial growth opportunity and it needs to come up with some formidable strategies to vitalize its Chinese business.
Our price estimate for Wal-Mart stands at $79.30, which is less than 5% ahead of the market price.
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Shrewd Consumer Behavior Is Troubling Wal-Mart
China, the second largest economy in the world, is a lucrative market for western retailers due to its huge population, booming middle class and rising disposable incomes. Entering this market in 1996, Wal-Mart was one of the first retailers to take advantage of this growth opportunity. However, the inability to resonate with the local market has made it difficult for foreign retailers to gain significant presence in China, and Wal-Mart is no exception.
Wal-Mart China contributes only around 2% to the company’s overall revenues, which is surprising considering that China is one of the fastest growing retail markets in the world. The retailer’s efforts to grow in China have been undermined by the shrewd consumer behavior and dominance of Sun-Art retail group. More than prices, Chinese buyers are concerned about the authenticity and quality of products. While Wal-Mart’s EDLP (everyday low prices) strategy has been very successful around the globe, it has been regarded as cheap and unsafe in China.
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Based on the philosophy and the goals of great value and great customer service, Chinese Wal-mart evolved from the goals set by Sam Walton whose belief was leading through offering services. It is on this basis of true leadership that is dependent on willing service on which Wal-mart came to existence. The company has now existed for at least 50 years now from 1962 through thin and thick amidst success stories………………………………..
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