Wal-Mart Rolls To $72, Steps Up China Focus

April 19th, 2012 by Trefis Team
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Wal-Mart (NYSE:WMT) plans to strengthen its presence in China, the second largest economy in the world after the U.S. Wal-Mart Asia CEO, Scott Price, asserted that the company intends to push expansion in China by increasing its online presence and curtailing costs. China is an important international market for Wal-Mart due to its burgeoning middle class. According to the National Bureau of Statistics, China’s retail sales witnessed an increase of 15% to $783 billion in Q1 2012. ((See: Wal-Mart to Work Harder on Growth in China, Wall Street Journal)) Wal-Mart competes with other big retailers like Target (NYSE:TGT), Costco (NASDAQ:COST) and Best Buy (NYSE:BBY) as well as online retailers like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).

We have a price estimate of $72.53 for Wal-Mart, implying a premium to the current market price.

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Chinese Grocery Market Poised for Growth

  • The Chinese grocery market is poised for enormous growth in the coming years due to favorable economic and demographic conditions. China’s grocery retail market is expected to grow 11% from this year to reach roughly $1.5 trillion in 2015, compared with 4.2% growth in the U.S. over the same period, according to the Institute of Grocery Distribution, a food-industry research firm. [1]

Initiatives to Drive Growth

  • In February 2012, Wal-Mart appointed Greg Foran as President and CEO of Walmart China. He is responsible for rebuilding Wal-Mart’s image in China.
  • Wal-Mart plans to establish a strong presence in China’s e-commerce market. In 2011, it bought a majority stake in Yihaodian, a fast-growing online retailer of groceries, consumer electronics and apparels.
  • In December 2010, it acquired online Chinese retailer 360buy.com. It sells mainly consumer electronics and has 15 million users and distribution facilities in around 60 cities.

Wal-Mart might have to implement a new strategy to penetrate further into the Chinese retail market. Despite operating in China since 1996, it still has to establish itself as a low price retailer. We are optimistic about Wal-Mart’s efforts since it has been operating in the region for over a decade and has an impressive international track record.

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Notes:
  1. See: Wal-Mart to Work Harder on Growth in China, Wall Street Journal [↩]