Founded in the US by Sam Walton in 1962, Walmart has now grown to be the largest retailer in the world with over 10,500 stores across 24 countries. Walmart entered China in 1996 with its first location in Shenzhen as one of the earliest foreign companies that set foot in China. By adapting its’ business model to cultural differences and sourcing locally, Walmart China was able to avoid some of the pitfalls that foreign retailers are facing in China over the past few decades.
However, the retail giant has been facing problems in the Chinese market recently, with a steady decrease in the number of retail stores in China since 2018. In 2021 alone, Walmart closed 42 supercenters nationwide. Therefore, some might put a question mark over whether Walmart has failed to understand Chinese consumers despite having entered the market for decades. In stark contrast to Walmart’s stores in the US, shopping at Walmart in China is probably not as pleasant – it is “hardly inviting,” as Harrison Jacobs put it in Business Insider’s article on how Walmart struggled to meet Chinese consumers’ expectations.
Despite the struggles of Walmart’s retail stores, Walmart-owned membership store Sam’s club is fairly popular among Chinese consumers, whose members reached over 4 million by the end of 2021. In September 2021, Sam’s Club opened its largest flagship outlet in Shanghai, which takes up over 70,000 square meters.
Overview of Walmart in China
Walmart China currently operates a total number of 390 retail stores in over 100 cities across China, among which 37 of them are Sam’s Club stores. In 2007, Walmart spent US$1 billion and acquired 35% of the parent company of Trust-Mart, a Taiwan-based hypermarket chain plan. This major investment by Walmart accelerated its expansion across Chinese regions. As of 2012, Trust-Mart had over 100 outlets across China, including many stores in lower-tier cities.
Walmart China sold its Chinese E-commerce site (Yihaodian) to JD.com in 2016. JD.com now operates on behalf of Walmart China for its online platform, which allows Walmart a more competitive position that taps into Chinese consumer needs.
Walmart operates three retailing formats in China:
- Supercenters mainly aim at saving consumers’ time and money. Walmart’s stated corporate mission is “Save people money, so they can live better”. Their business model allows them to sell commodities with low prices harmonized across all their shops nationwide.
- Sam’s Club in China is a members-only warehouse. Walmart China has a similar business model as Costco in China, which provides low-cost, bulk products for both business and personal use.
- Apart from traditional retail, Walmart has been partnering with JD.com since 2016, which allows customers to enjoy the convenience of e-commerce channels. In 2017, Walmart’s subsidiary Sam’s Club has also launched its first official flagship store on JD.com. As of 2022, Walmart is one of the fastest-growing retail supermarkets on JD Daojia, providing a one-hour delivery service through over 400 Walmart online supermarkets across China.
Supermarkets are struggling to make ends meet in the Chinese retail industry
Facing the ever-increasing competition from online retailers, soaring rental costs, and the challenges posed in the context of the COVID-19 pandemic, foreign hypermarket retailers have been struggling in the fast-moving Chinese retail market. In 2019, Carrefour sold 80% of its stake to China’s local company Suning. Despite Walmart’s various efforts to stay competitive, such as sourcing locally to maintain low pricing and incorporating sustainability to cut down operation costs, the old business model of hypermarkets can hardly compete with emerging models like group buying and e-grocery. Over the past five years, the number of Walmart supercenter stores in China has been decreasing from 424 in 2018 to 361 in 2022.
Walmart’s membership-based Sam’s Club is gaining popularity in China
Although supermarkets are struggling to profit, membership-based wholesale clubs are booming in the Chinese market. Three years after Costco’s crazy debut in Shanghai in 2019, the US-based warehouse giant Costco made an announcement to open another 7 stores in China, making it one of Sam’s Club’s biggest competitors in China’s warehouse club segment.
CLICK TO LEARN MORE ABOUT COSTCO’S SUCCESS IN CHINA
Notably, although Sam’s Club first entered the Chinese market as early as the late 90s, not until recent years did warehouse clubs become trendy among Chinese consumers. As the income level of Chinese consumers continues to increase and more emphasis has been put on the quality of products, a membership card becomes a worthy investment among Chinese families. Additionally, the increase in the ownership of private vehicles over the past decades allows more consumers to purchase bulk items.
Key takeaways of Walmart in China
- Supermarkets are finding it difficult to meet the demands of Chinese consumers, which is even more so for foreign retailers.
- Walmart achieved success in the US with cheaper prices, while western brands are usually perceived as high-quality in China, which caused a contradiction that Walmart found challenging to adjust in the Chinese market for years.
- Therefore, giant hypermarket retailers like Walmart are cutting off the number of stores in China and cooperating with local companies like JD.com for digital transformation.
- Walmart continues to expand in China by opening more Sam’s Club stores, as the business model of membership-based warehouse clubs becomes increasingly popular among Chinese consumers.
- Despite the criticisms Sam’s Club faced in 2021 because of removing products partially made in Xinjiang from the shelves from Chinese netizens, there is no denying that membership clubs are gaining popularity in China, especially under the context of COVID-19 where more people are stocking up in case of a new round of lockdown.
