Walmart is being conservative about opening new physical stores. Chen Cheng / Xinhua

Company needs long-term strategy to play up its strengths: Analyst

The world's largest retailer by sales, Wal-Mart Stores Inc, will open 110 new outlets in China within three years, senior executives said on Thursday.

At the same time, the United States-based company will invest in higher-growth sectors such as e-commerce and real estate.

Greg Foran, Walmart China president and chief executive officer, said that the company's focus in China will be investment and development, while quality should take precedence over quantity as the company grows in the country.

The retailer has opened 30 new stores and Sam's clubs this year in China. The US retailer has closed 11 other stores and will shutter 15 to 30 other outlets in the next 18 months.

Foran said the closures will represent about 9 percent of the total store portfolio and 2 to 3 percent of sales volume through next year. "It is a natural process as you expand the network [to close locations] that are not performing how you want," he said.

He said that the expansion plan includes more stores in third- and fourth-tier cities from 2014 to 2016, mostly supercenters and Sam's Clubs.

Walmart's high-end membership store, Sam's Clubs, has 10 stores in China, and more are coming.

"The business model is ripe for the burgeoning middle-income and upper-income consumers," said Foran.

According to a report by market research firm Kantar Worldpanel, strong growth is now coming from shoppers in lower-tier cities. Meanwhile, shoppers in higher-tier are buying more fast moving consumer goods.

The renovation of existing outlets is another facet of the retailer's plans. It will freshen up locations that have been operating in China since 1996.

That plan covers the remodeling of about 45 stores this year, 55 next year and 65 the year after.

More distribution centers will be developed to ensure that all stores have access to ambient distribution networks, which handle food at room temperature, and chilled distribution networks. Both types of distribution are crucial to food quality and fresh food supply.

Walmart is being conservative about opening new physical stores. The company has acquired majority control of its Chinese online store Yihaodian, and it's expecting more growth from e-commerce in China, as well as real estate.

Doug McMillon, the president and chief executive officer of Walmart International, said that as to possible mergers and acquisitions in China, the company is looking for other retailers with stores - and also for those adding new capabilities, such e-commerce activity.

He cited opportunities for growth in good-quality real estate.

In the competitive retail sector in China, Walmart ranked fifth in the third quarter, after Sun Art Retail Group Ltd, RT-MART International Ltd, Groupe Auchan SA and China Resources Vanguard Co Ltd in terms of market share, according to Kantar Worldpanel.

Wumart Stores Inc announced it has agreed to buy most of Thailand-based CP Lotus Corp's supermarkets on the mainland for HK$2.35 billion ($302 million).

United Kingdom-based Tesco Plc announced it will form a joint venture with China Resources Enterprise. which operates the Vanguard stores.

Jason Yu, an analyst at Kantar Worldpanel China, said Walmart needs a long-term strategy to play up its strengths and eliminate underperforming stores amid fierce competition with local rivals.

wangzhuoqiong@chinadaily.com.cn