Shopping spree

Shenzen, March 27 (Reuters): When Wal-Mart Stores Inc opened its first store in Shenzhen a decade ago, the local newspaper headline proclaimed, ‘The Wolf is Coming’.

The world’s biggest retailer has not exactly devoured China’s retail sector since then, opening just 56 stores, but it has learned a few lessons that may prove useful for its next major project ? India.

“China and India really represent the future of Wal-Mart,” Joe Hatfield, chief executive officer for Wal-Mart Asia, said in Shenzhen, the retailer’s China headquarters.

Foreign retailers are not permitted to directly invest in India’s retail sector, but they have been lobbying hard for a change to those rules.

Wal-Mart’s opponents in India fear the ‘wolf’ would demolish competitors and drive up unemployment in a country already struggling to feed and house its more than one billion citizens.

But Wal-Mart believes India, like China before it, will embrace Western retailers. The key is to show an understanding of local tastes, whether that means stocking popular spices, the right baked goods, or just the top-selling brand of soap.

Easier said than done.

In China, Wal-Mart tried to sell paint, something that works well in the United States. But customers weren’t used to buying paint and food from the same place, and Wal-Mart eventually stopped carrying it.

Analysts and economists in India say the retail sector and its supply chain are in dire need of modernisation. India’s farm goods typically pass through six or seven intermediaries before reaching consumers, and some 40 per cent of produce spoils along the way.

Wall Street is eager for signs Wal-Mart is making progress in China and India at a time when growth at home is sluggish.

The United States accounts for about 80 per cent of Wal-Mart’s annual sales, which topped $312 billion in the latest fiscal, but rival Target Corporation has posted faster sales growth in recent quarters.

Investors have noticed. Target’s shares are up more than 6 per cent over the past year, and trade at 17.2 times the profit forecasts for the current year. Wal-Mart’s stock has fallen about 5 per cent during that time, and is valued at 16.5 times its earnings per share.

Wal-Mart has already started preparing for India. The retailer has applied to open a liaison office in Bangalore to study the market, and recently hired a head to formulate its strategy in Asia, who will also oversee Wal-Mart’s expansion in India.

Wal-Mart vice-chairman Mike Duke met Indian officials early this month, marking the retailer’s second round of high-level talks in less than a year.

Hatfield himself may be one of the best resources. He opened Wal-Mart’s China operations in 1994, so he is well aware of the potential pitfalls in a developing economy.

His best advice? “Steal shamelessly,” Hatfield said, quoting from Wal-Mart founder Sam Walton, who routinely visited competitors’ stores to get new ideas.

He spent months in China walking around and talking to shopkeepers about which items sold well.

In China, Wal-Mart got off to a slow start, and trails rivals such as France’s Carrefour, which did a better job of adapting stores to meet local tastes.

Hatfield says it is unlikely he will be in charge of Wal-Mart’s India business, because the retailer’s expansion in China will keep him busy.