Chinese suppliers have long played an important role in helping Wal-Mart Stores deliver low-priced products to shoppers in the United States and other developed markets. But since 1996, when the giant retailer opened its first stores in the southern Chinese city of Shenzhen, Wal-Mart has had high hopes for selling in China as well as sourcing there. Today, the company, based in Bentonville, Arkansas, operates 260 outlets in China—ranging from its classic Supercenters to retail partnerships with local Chinese retailer Trust-Mart—and employs more than 90,000 associates. And as China CEO Ed Chan explains in this interview, Wal-Mart sees enormous potential for further growth in the region. Todd Guild, a director in McKinsey’s Tokyo office, interviewed Chan at Wal-Mart China’s headquarters, in Shenzhen, in October 2009.
Todd Guild: There’s been a lot of discussion about the effects of the global recession and the role of China in its recovery. Can you tell us how has the slowdown affected Wal-Mart’s business plans in China?
Ed Chan: Last September, we were seeing some slowdown in spending in a small patch of China. I think this export slowdown probably kicked in slightly earlier than September. So, we were seeing in, for example, our Sam’s Club, our professional members—those who run restaurants, those who run hotels, those who run factories—they were becoming conservative. The first sign we saw was the big autumn festival back in 2008, when some members of Sam’s Club, [who] used to buy a lot of gifts for their trading partners or their employees, were buying a lot less.
There’s no doubt that China’s economy, given its reliance on exports, has been affected to a certain degree. But by and large, this economy is still, I think, growing at a pace that many other countries are somewhat jealous of. We look at China as one of the most interesting and good markets for Wal-Mart.
Todd Guild: Tell us about your direct reports and your leadership team in China.
Ed Chan: In China today—in our own operations, in our associate company Trust-Mart—all the stores are run by Chinese general managers. They are our very senior team members of the company. In terms of my direct reports, we have a very good mix of what I call global capability, but they work in China.
The one big characteristic of our team here is they all share the Wal-Mart values: how to save our customers money so they can live better. They all are passionate about China. They all are passionate about Wal-Mart in China. And they just love what they do.
Todd Guild: China is clearly characterized by its regional differences. What has Wal-Mart done to tailor its assortments and its formats to regional differences in China?
Ed Chan: We have learned so much about the diversity of the customer base in China. And the diversity will fall into different categories. This country is huge. From north to south, the geography implies a number of things. Number one: climate. Number two: differing customer preference. Number three: we can see the varied income level from the very rich coastal provinces, the megacities, to inland China, where income could be one-third or sometimes even one-quarter [of income levels in] the big megacities of Guangzhou, Shanghai, Shenzhen, and Beijing.
Todd Guild: What do you see in terms of the effects and the speed of the shift for retailers in online retailing and multichannel retailing in China?
Ed Chan: China probably has the largest [number of] Internet users officially or unofficially already. Second, it’s the country with the largest [number of] mobile-phone users. Internet and mobile—the combination of mobile and Internet—is a reality.
With these two, we know that online and e-commerce is a matter of time. They’re still small, but there’s no doubt in my mind that online e-commerce, multichannel, will be an important part of the retail consumer market in China in the years to come. I’m very excited about it. We don’t have an online business yet, but these foundations of Internet usage and mobile technology will no doubt create a huge market in that space for any consumer company.
The other aspect of development is what I’m seeing in the fascinating infrastructure development in China. We all know about the highway density in China. It’s probably approaching the US already. We know the number of high-quality airports in China. What’s also amazing is the rapid build-up of definitely the most sophisticated and the biggest railroad network in China.
When you have all these infrastructure investments coming onstream, and then when you combine it with the technology—Internet usage, new-generation mobile phones—I think, with these developments in China, I won’t be surprised that the consumer technology, the infrastructure, will all blend together to create once-in-a-lifetime opportunities for companies who understand how to tap into this.