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Big Boxes Battle in China

French retailer Carrefour has a jump on Wal-Mart in the populous country, but the U.S. giant aims to catch up. Both face big challenges, including tough local rivals.

July 02, 2006|Don Lee | Times Staff Writer

Urumqi, China —

In this remote region along the old Silk Road, Carrefour is on the march.

The Paris-based retailer has already opened two stores here, one in the northern end where many ethnic Chinese live and another next to a mosque in the Muslim section populated by Uighurs. This fall, Carrefour will open a third mega-store in this city of 2 million, selling groceries alongside its other goods.

What about Wal-Mart Stores Inc.?

"I can't imagine they will come here," Christian Roquigny, who manages Carrefour's Uighur store, said as he walked past a golden-domed mosque, nodding to men coming out after Friday afternoon prayers.

Roquigny boasted that his store sold no pork and was certified as halal, or permissible under Islamic dietary law. Wal-Mart managers, he said, aren't given the same flexibility to adapt.

As the world's leading retailers battle for new markets around the globe, they are increasingly setting up in places like Urumqi, where Carrefour's average checkout total is just over $5.

Wal-Mart and Carrefour, the world's No. 1 and No. 2 retailers, have stepped up their expansion in China in recent years, virtually matching each other, store for store, in many locales. But the nearest Wal-Mart to Urumqi is 1,400 miles to the east.

Carrefour's operation in this western city demonstrates why the French company has raced ahead of those of its multinational rivals in the world's most-populous nation. By joining with Chinese partners, adapting to local culture and employing a supply chain that includes 18-wheel trucks and three-wheel bicycles, Carrefour has become the biggest foreign retailer operating in China.

It operates 79 stores in 32 Chinese cities compared with 60 locations in 30 cities for Wal-Mart. Last year, Carrefour's sales in China totaled $2.2 billion, compared with $1.2 billion for Wal-Mart, according to the Commerce Ministry in Beijing.

"Carrefour's management is quite flexible and their localization is better," said Huang Guoxiong, a business professor at Renmin University of China in Beijing. Localization is an industry term for adapting a store to local tastes and preferences.

Wal-Mart is accelerating its store openings in China -- it plans to open at least 18 this year, six more than Carrefour -- and analysts are reluctant to bet against the Bentonville, Ark.-based discount retailer given its enormous resources. Its global sales last year reached $285 billion, triple that of Carrefour's. Wal-Mart bought $18 billion in goods from Chinese manufacturers last year.

But as a retailer in China, Wal-Mart is a small fish. Its strategy of offering tian tian ping jia, or "everyday low prices," hasn't had a big effect on Chinese mom-and-pop shops that are used to cutthroat pricing. Wal-Mart has been unable to replicate its super-efficient logistics system in China largely because it lacks scale.

Even Wal-Mart's staunch anti-union stance is being challenged, ironically, in a country where unions have little power. Government-backed trade union officials in China have been trying to organize workers at foreign enterprises and have been especially critical of Wal-Mart's resistance to the idea.

None of Wal-Mart's stores in China is unionized, says Huang Jianling, the company's public relations manager in China. She declined to say whether any of the retailer's 30,000 workers in China had expressed interest in forming a union. By comparison, about three-quarters of Carrefour's 34,000 employees in China are union members.

Wal-Mart beat Carrefour to China by a few months, sending executives to the Middle Kingdom in 1994. But it wasn't until two years later that Wal-Mart opened its first super-center in Shenzhen, an industrial city that borders Hong Kong. After building a cluster of stores in China's southeast, Wal-Mart started to push up the coast and sought to break into Shanghai.

But when it approached authorities, Beijing instead offered a license in Shenyang, in the gritty northeast region near North Korea, says Paul French, founder of Asia Access, a market research firm in Shanghai.

Shanghai officials didn't go out of their way to help, either. Some grumbled that Wal-Mart waltzed into town and began pressing for favorable terms, playing one district government against another.

Carrefour, meanwhile, bypassed Beijing and cut deals directly with local governments. "They would go to the local mayor, the [Communist] party guy and say, 'I'll bring you a Carrefour store, pay taxes, create jobs, pay rent,' " French said.

Local officials were thrilled. Beijing later caught on and slowed Carrefour's growth, but by then the retailer had already locked up some of the best sites in cities such as Shanghai.

Wal-Mart opened its first store in Shanghai last year. Carrefour has been in the eastern metropolis since 1996 and has 10 stores in the city, one of China's wealthiest.

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