Wal-Mart to buy Chinese hypermart chain for $1bn
Wal-Mart Stores has agreed to buy a Chinese hypermarket chain for about $1bn to become the top foreign player in China’s fragmented retail market, a source familiar with the situation said on Tuesday. If approved by Chinese regulators, the deal to buy Trust-Mart, a closely held Taiwan company with 100 supercentres in China, would push Wal-Mart past Carrefour for the most supercentres in China, Asia’s second-biggest retail market.
Spokespeople with Wal-Mart, the world’s largest retailer, and Trust-Mart declined to comment on Tuesday.
Supercentres, also known as hypermarkets, are giant stores that sell a wide range of general food and merchandise. Wal-Mart beat Carrefour out in bidding for the Trust-Mart stores, the Wall Street Journal reported on Monday, citing sources. Trust-Mart posted ’05 sales of about 13.2bn yuan ($1.67bn) at its Chinese hypermarkets, according to the China Chain Store and Franchise Association, well above Wal-Mart’s 9.9bn yuan in its Chinese stores.
By comparison, Carrefour had ’05 sales of 17.4bn yuan at its Chinese hypermarkets while Germany’s Metro recorded sales of 7.5bn yuan, the data showed. But China’s retail market — worth about $500bn according to research firm Euromonitor — is still dominated by Chinese chains, analysts said, with the foreigners lagging far behind industry leader Bailian Group, which was created in ’03 through a merger of four major retail firms.
“When Wal-Mart expands, supposedly they are going to enjoy better economies of scale,” said retail analyst Selina Sia with UBS in Hong Kong.
“The market is still highly fragmented. None of the chains have a dominant power to take leadership, but there are more domestic firms than foreign ones.”
The top 100 retailers in China account for only 10% of the sector, accounting firm Ernst & Young said in a recent report. Established in 1997, Trust-Mart employs more than 30,000 people at its hypermarkets in more than 20 provinces across China, and says it offers nearly 20,000 different products. “Acquisition is the game. If you can buy ‘x’ number of stores in one scoop…then you have increased size to help you cut down on the cost of supply. It’s just the right thing to do,” said Jack Huang, chair of the Greater China Practice of international law firm Jones Day.
International expansion has become increasingly important for Wal-Mart as its US sales growth slows. Its US discount stores posted 7.9% sales growth for September, while the international business turned in a strong 32% gain.
Wal-Mart’s international operations have endured some high-profile setbacks this year, however, as the retailer pulled out of South Korea and Germany.
The retail giant said in July it was selling its underperforming German stores to Metro, the country’s leading retail chain, just after it in May announced the divestment of its loss-making South Korean stores to Shinsegae.
Wal-Mart has made no secret of its ambitions in China. The retailer has said that its operations there could be as big as its US business in 20 years. Wal-Mart currently has more than 3,700 US stores, re association’s data showed. In March, Wal-Mart said it planned to hire some 150,000 people in China over the next five years — five times the number it currently employs — as it prepares for a major store expansion.
Source:
