China Watch: Wal-Mart's Growth Story

UPDATED Nov. 5 to correct name of Greg Foran.

TAPEI, Taiwan (TheStreet) -- Just a decade ago someone living in Beijing could buy half a week's food and whatnot from a supermarket near home. The rest would come from a wet market, an electronics shop and government department stores, all within reach distance- and schedule-wise for shoppers going to work and back. You didn't need, say, Wal-Mart (WMT).

Now a lot of community grocers in Beijing and around urban China are gone as developers reclaim land for high-end projects, evicting entire neighborhoods as they go. Wet markets have moved out of city centers for more development. Department-store prices are climbing as people get richer, while urban traffic jams deter trips to specialty shops.

Naturally urban Chinese want to break the barriers that have put their customary shopping haunts out of reach. The quest for new places to buy and sell explains why e-commerce thrives and why convenience weighs in the success of conventional retail sales.

These factors also explain why Wal-Mart has boomed in China, with 400 stores and distribution centers there now and another 110 on the way.

The American retail giant with 11,000 stores worldwide said in Beijing in late October it will open the 110 outlets around China over the next three years and close 9% of the existing ones. The effort, which will employ 19,000 people, is aimed especially at second-tier and third-tier cities (easily more than one million people each). Over the same period, Wal-Mart will remodel scores of existing China stores.

A Wal-Mart store in China amalgamates enough sundry stuff in one place to cut out trips to other retailers and by all accounts sells for less than the ritzy malls -- though its China Web site doesn't list prices. Wal-Mart proposes remodeling 45 stores this year, 55 next year and 65 in 2015 partly to improve parking and store access, perfect for traffic-weary Chinese shoppers.

And Wal-Mart is helped by the fixation on foreign brands over local ones in China, no matter how down-market the brand may strike people from its country of origin -- consider McDonald's ( MCD) and Yum Brands' ( YUM) KFC.

The appeal of Chinese brands has been reduced with flap after flap about contaminated food going back to the late 2008 tainted milk powder scandals. No wonder Wal-Mart pledges on its China Web site and pledged again in an Oct. 24 company statement to keep its food safe, a no-brainer in its many other markets.

Meanwhile, General Motors' ( GM) sales growth in China of 11% in August and 14% in September further points to China's crush on Americana.

A final selling point for Wal-Mart: Consumption is supposed to be on the rise nationwide as the government hopes it offsets export manufacturing as an economic pillar.

In 2011, department stores logged 17.7% year-over-year growth with revenue outdoing expansion in operational floor area and total employee numbers, Hong Kong-based global sourcing company Li & Fung ( LFUGY) said in a report, citing a survey by Deloitte and the China Chain Store and Franchise Association.

Yet Wal-Mart vies with foreign competitors such as Amazon ( AMZN) and Macy's ( M) as well as China-based Lotus Supermarket and Wumart Stores, making it hard to stand out long term.

Wal-Mart has already taken a defensive stance: "We adapt to market changes by making adjustments and innovations, and we will modify our operations in China by upgrading the merchandise we sell, especially in fresh food and grocery," China president and CEO Greg Foran said.

At the time of publication, the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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