Daily Management Review

China Resource Dumps Wal-Mart in China amidst Changing Retail Business Landscape


Wal-Mart’s hope for increasing market share in China has suffered a huge blow after the departure of a major local partner for its traditional brick-and-mortar stores.

The reason being rumored around in the business parlance is reflection on the rapid changes in the traditional retailing market by the Chinese partner which could lead Wal-Mart to concentrate more on the e-commerce rather than on the brick and mortar store chains.
Just three months ago, the American company had sacked one of the founders of its China e-commerce site.
China Resources, one of the country’s biggest and oldest consumer names and joint owner of many of the Wal-Mart stores, is reported to have dumped shares worth $515 million in a number of Wal-Mart stores.
In the fast-changing huge but difficult Chinese retailing market, the move is not surprising for a number of reasons but it does not bring in good news for Wal-Mart. After the split China Resources becomes a competitor for Wal-Mart as it is already a major owner of smaller supermarket chain called Vanguard. The Chinese company has also ventured into the hypermarket business about two years ago when it effectively took over the China-based operations of British giant Tesco through a joint venture. This enhances the competition for Wal-Mart.
Due to their short history, traditional retailing chains in China never really had the chance to develop into a mature presence and this move indicate the surging popularity of e-commerce in the country when viewed from a broader perspective.
This trend in the recent years has enabled the rapid rise of e-commerce companies like Alibaba and JD.com who offer very competitive pricing as their costs are typically much lower than traditional retailers. As the online stores quickly cut delivery times to become more competitive with brick-and-mortar rivals, they become more competitive for the traditional retail stores and enhance the convenience for consumers.
Wal-Mart has been one of the few to stick to its guns and keep opening new stores in China even as many other big western retailers like Best Buy and B&Q have shuttered their China operations completely.
But things have changed dramatically after China Resources formally listed its stakes in 21 Wal-Mart stores for sale on an internal Chinese market for such transactions.
While saying that it respected the move by its Chinese partners, Wal-Mart claimed that there would be no impact on its operations.
The shares of Chinese Resources in Wal-Mart stores are valued at 3.3 billion yuan or $515 million and collectively account for 35 percent of the pair’s jointly owned stores. There have so far not been any reports of any buyer cropping up for the sale of the shares.
The break up would affect the stores over a vast region from western Sichuan province to Beijing.