Wal-Mart buys 35% in China retailer

SHANGHAI: Wal-Mart Stores, the world’s biggest retailer, agreed to buy 35% of Trust-Mart, a hypermarket operator in China, to expand in the world’s fastest-growing major economy and challenge Carrefour. The investment may lead to Wal-Mart taking ownership control of the operator of 101 hypermarkets in China, the Bentonville, Arkansas-based company said in a statement on Tuesday. Wal-Mart didn’t release financial details.

Buying Trust-Mart would more than double Wal-Mart’s stores in China and allow it to win customers from Carrefour, operator of more than 1,000 supermarkets in the world’s most populous country. On October 17, a person familiar with the negotiations said Wal-Mart planned to acquire all of the Chinese retailer in a deal that valued it at about $1 billion.

“Wal-Mart’s expansion in China is too slow, compared with that of Carrefour,” said Hu Hongke, a Shanghai-based analyst at China Merchants Securities. “Expanding through acquisitions would be a growth short-cut in China, where good retail locations are limited.
Trust-Mart, a closely held chain of grocery and appliance stores with more than 31,000 employees, will continue to operate under its own brand, according to the statement.

Wal-Mart is buying the stake in Trust-Mart through purchasing shares in owner Bounteous, registered in the British Virgin Islands. Founded in 1997, Trust-Mart has expanded to more than 20 provinces in China, the company said on its Web site. It sells about 20,000 items, including groceries, home appliances and clothing, in stores with total space in excess of 400,000 square meters. Wal-Mart, which entered China in 1996, operates 73 stores in 36 cities in China.

“Through this investment in Trust-Mart we have the opportunity to expand our presence in China,” Wal-Mart vice chairman Michael Duke said in a statement. “This is an important step in bringing additional scale to our China retail business.” He Delai, assistant president of Trust Mart, declined to give financial or other details when contacted by telephone today. Credit Suisse Group said in a statement it advised Wal-Mart on the purchase.

Wal-Mart’s overseas ambitions were thwarted last year by its withdrawal from Germany and South Korea, and after Japan’s Aeon won exclusive rights to acquire the supermarket company Daiei last October. China’s retail sales grew 13.7% last year to $770 billion last year, equivalent to one quarter of the US market.

The economy expanded 10.7% in 2006, the fastest pace since 1995, helping increase incomes by 12.1% among urban people and 10.2% in rural areas.

Carrefour, the world’s No 2 retailer, said October 30 it plans to open 20 hypermarkets a year in China in several years. The French company has 90 superstores and more than 1,000 supermarkets in the world’s most populous country, its website says. China deregulated its retail market in December 2004 to meet World Trade Organisation pledges, allowing overseas retailers to operate in the country without local partners

To meet fiercer foreign competition, Chinese companies have stepped up consolidation, with Shanghai Bailian Group combining four Shanghai companies to become the country’s biggest retailer with 6,000 stores.

Wal-Mart last October appointed Ed Chan as head of its retail business in China, replacing Joe Hatfield this month. Chan joined the company from Hong Kong-based retailer Dairy Farm Group, where he was regional director of North Asia.

The US retailer said last year that two-thirds of its stores in China have set up trade-union branches. The company, with 33,000 employees there, is co-operating with the All-China Federation of Trade Unions. In August, Wal-Mart introduced a credit card with Bank of Communications in China.

China’s consumer industry has potential for more expansion as per-capita spending is only $1.60 per day, compared with $27 for the average American consumer, Goldman Sachs Group Inc. said in a February 12 report. The government is encouraging domestic spending to reduce the economy’s reliance on exports and fixed- asset investment.

China’s retail sales surged 15% from a year earlier to 220 billion yuan ($28.2 billion) during the nation’s week-long Lunar New Year holiday, spurred by rising incomes, the ministry of commerce said in a statement on Monday. Parkson Retail Group, a retail chain in China owned by Malaysia’s Lion Group, on Tuesday posted profit growth of 73% in the fourth quarter.