What’s the reasoning behind Wal-Mart’s latest retail maneuver, and what can it gain from buying out a local company? NEWSWEEK’s Jessica Bennett spoke with Charles Fishman, author of “The Wal-Mart Effect” ( Penguin ) about the corporation’s international ventures. Excerpts:
NEWSWEEK: Put this billion-dollar purchase into perspective for us, in relation to Wal-Mart’s global size and reach.
Charles Fishman: The money Wal-Mart is spending is not significant compared to the size of the company. What’s important about this is that with a single stroke, Wal-Mart is going to more than double its presence in China … They’re getting a widespread store network [and] a lot of local knowledge with a single deal. That’s what’s significant.
Does this put Wal-Mart a step ahead of its competitors?
The retail market in China is really interesting because it’s very deeply bifurcated. Eighty percent of what people buy in China is not bought in what we’d consider to be typical stores. It’s bought in open-air markets or local shops. And of the remaining 20 percent or so that we’d recognize as typical retail stores, only a tiny bit of that is foreign—about 10 percent. So most of the grocery-store kind of retail remains in China remains in the hands of Chinese companies, and yet there’s this kind of mad race to tap the blossoming Chinese retail market by Wal-Mart, [France’s] Carrefour and [Britain’s] Tesco … This really gives Wal-Mart a big step forward in the world of foreign retail, it gives them an access to a supply chain, [and] it will really help them get established outside of the big cities in China.
How big could this deal be in terms of scope and revenue?
Wal-Mart has about $1.2 billion in sales in China right now, out of $315 billion. So China is one third of one percent of Wal-Mart’s sales. But China is a place where Wal-Mart could do exactly what it has done in the United States in half the time. China could easily accommodate 1,000 or 2,000 stores given the size of the population, and there’s a real hunger for the kind of retail that Wal-Mart and its colleagues in the global retail world are delivering in China.
But Wal-Mart has pulled out of international markets like Germany and South Korea. Why hasn’t their model always translated well overseas?
Wal-Mart has a really interesting either homerun or strike out experience internationally. In Germany, there were three things that got in Wal-Mart’s way. One was the [strong] labor unions in Germany. [Another was that] there are much stronger laws about retail in Germany that also limit Wal-Mart’s competitive advantage. … [Lastly,] there’s a low-cost competitor already out there in Germany—so Wal-Mart just had a tough time finding a niche. As for South Korea, South Korean consumers are much less focused on price, and much more focused on quality and what they’re buying. That’s not been Wal-Mart’s strength, selling to quality. Wal-Mart’s strength has been price, so they never quite figured out South Korea.
Where has Wal-Mart seen the most success overseas?
In Mexico they went from nothing to the largest retailer in the country in 10 years. The Mexican market was maturing and blossoming and there was a real hunger for the next level of retail. I think at some point there becomes a real frustration with what’s available at small stores, or with having to ride the bus to get to a hypermart.
But why China?
To them, China looks like Mexico—a place where capitalism is really taking hold, where there’s a real entrepreneurial spirit, where there’s a strong hunger for consumer goods that’s not yet well-satisfied, and also, real interest in a good deal.
How is the plan in China different from what has been executed in Mexico?
They’re been pretty successful in China while also being pretty cautious. Ten years after opening in Mexico they had 600, 700 stores, something like that. Ten years after opening in China they have 66 stores. So they’ve moved a little bit slower but they’ve announced in fact that they’ve picked up the pace.
Do you think the company can successfully absorb Trust-Mart?
They should be able to. One thing they’ve done that’s pretty smart is that all the store managers of Wal-Mart stores in China are Chinese nationals, so they’re clearly thinking long-term in China in that they’re trying to develop real expertise in the Wal-Mart way in the country—presuming that they’re going to grow in the country and they’re going to need local talent to power that growth.
What’s happening in the U.S. market that’s driving Wal-Mart’s international ambitions?
Right now in the United States, 62 percent of Americans live within five miles of a Wal-Mart, and 94 percent of Americans live within 15 miles. So if you want to shop at Wal-Mart, you can … The kind of merchandise Wal-Mart sells means that if you’re not cracking new geographic territory and you’re not finding new lines of business, it’s hard to grow dramatically.
What’s different about the market in China?
The economy in China is booming, and retail spending in China is growing at 15 percent a year—three times what it’s growing out here. It may grow at 15 percent a year for the next 20 years just because of the maturation of the middle class there. And the country is essentially underserved by this kind of mature retail salesmanship, so it’s a wide-open territory. If Wal-Mart’s going to continue to grow and thrive based on growth, it’s got to grow outside the United States.
How will they handle the unions in China given their difficulties with labor in Europe?
The idea that there are labor unions in China is kind of silly. There are labor union organizations but they don’t have collective-bargaining rights. That is to say, they aren’t permitted to sit down at a table and hash out a labor agreement with Wal-Mart management and then go on strike if they don’t get what they want. The words are the same, labor unions, but they are not comparable to U.S. labor unions … It’s not going to interfere with their way of doing business.
Are they likely to keep the Trust-Mart name or rebrand it as Wal-Mart?
My bet would be that they’d migrate that over to Wal-Mart.
Will China change the culture of Wal-Mart or will it be the other way around?
I don’t know that China will have that much impact on the way Wal-Mart does business in, say, Birmingham, Ala. I think what’s been pretty impressive is how carefully Wal-Mart has adapted to what Chinese consumers want, which is something they’ve struggled with in some other places. You know, you can buy live toads in the Wal-Marts in China. You can buy live eels, live fish—they’re all for sale, because those are an important part of the Chinese diet and people like to pick them themselves. So they’ve done well at adapting, from what I gather, to the range of Chinese goods, while also bringing a range of the global brands of consumer goods to areas of China where they would otherwise been either very, very expensive or unavailable. So it’s an interesting mix in terms of those kind of cultural things.
What’s next for Wal-Mart? Can they continue to grow without China?
Wal-Mart still opens one new supercenter on every business day of the week in this country. But they know that Americans are kind of taking a breath. So they’re thinking about the future, and clearly, in this case, the future is China.
