What: Walmart’s difficulties in China are illustrating how the western approach to business is decoupling from the Chinese market realities.

Why it is important: Walmart has divested in many countries but holds tight to China (10% of China’s total retail sales in the country, 360 active stores, 36 Sam’s Club stores) in order to preserve its supply chain for global operations.

Walmart opened its first store in China in 1996, in Shenzhen, near Hong Kong. However, in spite of this early market access, the company has never found ways to grow fast enough to outcome the competition, and its store count is in constant decline since the peak in 2018. According to the Wall Street Journal, the reasons are multiple and illustrate how difficult it is for Western companies to perform in China:

• Uncertainties created by the growing role of Chinese politics in the economy,
• The difficult relationship between China and the US,
• The need to deal with the local sensitivity of customers.

In spite of these difficulties, Walmart has kept the country as part of its global operations even at a moment when it has divested in UK, Brazil and Japan. The reason is that their retail footprint in China is actually linked to their production capability in the country, which in turn guarantees the company access to low-priced items it needs to sell. The company dropped to the 4th largest operator of hypermarkets in China this year, from second-largest a decade ago, and customers are not appealed anymore by the prospect of going to hypermarkets to buy groceries when they have so many convenient options online.

Walmart does not operate its own e-commerce platform and has made a partnership with JD.com (which also operates on its own hypermarkets).

Why Walmart is struggling in China