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Wal-Mart Stores, Inc. (WMT) Targets Affluent Chinese

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According to Financial Times, Wal-Mart Stores Inc. (WMT) is geared to expand its Sam’s Club stores in the fastest growing economy of the world, China.

The supermarket chain has retuned its business strategy and is now targeting the more affluent customers to drive higher sales in the subcontinent. Wal-Mart plans to focus mainly on its Supercenters and Sam’s Club stores, and has undertaken a major remodeling plan that includes revamping about 45, 55 and 65 stores in 2013, 2014 and 2016, respectively.

In Oct 2013, Wal-Mart announced its plans to open more than 100 facilities in China between 2014 and 2016, which will create approximately 19,000 retail jobs.

During the same time, Wal-Mart also announced plans to aid the urbanization of the tier-two, tier-three and tier-four cities of China. The company will thus be able to create demand for its goods while serving the customers better. Moreover, Wal-Mart will be able to lower its cost of sales by utilizing the cheap labor in the country.

China is a strategic market for Wal-Mart as the global chain is facing difficult retail environment in the U.S. Wal-Mart entered China in 1996 with its Supercenter and Sam’s Club outlets in Shenzhen. However, it has not been able to gain market share in the country, as it is facing stiff competition from several local players.

Although the low-price business model was a big hit in the U.S., the retailer has not been able to gain firm footing in the Chinese market as consumers look for cheaper deals online and in local retail shops. Wal-Mart is facing difficult retail conditions in the country following the recent slowdown of the economy’s growth. Moreover, amid several legal issues, the grocery giant had to part ways with its Indian joint venture partner, Bharti Enterprises.

However, recent trends show that affluent customers in China prefer the outskirt locations of Sam’s Club, rather than its supermarket stores. Currently, Wal-Mart operates 10 stores in the country and plans to open two Sam’s Club locations every year from 2014. Sam’s Club earns revenues mostly from its membership fees rather than sales. Moreover, Sam’s Club shelves items which the local stores in China do not. The imported items are of great demand in the country.

Wal-Mart currently carries a Zacks Rank #3 (Hold).

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