Wal-Mart Digs Deeper Into China
By Alyce Lomax
December 11, 2007
Wal-Mart (NYSE: WMT) plans aggressive growth in China. Does that mean it's time to buy?
According to a recent Reuters article, the retail behemoth recently won approval from the Chinese government to open its 100th store in that country. It plans to continue expanding in China at a rate of more than 30% per year.
Given Wal-Mart's recently lackluster domestic growth, its aggressive moves into populous overseas markets certainly make sense. Plenty of other American companies see great opportunity in China, including Starbucks (Nasdaq: SBUX), McDonald's (NYSE: MCD), and Yum! Brands (NYSE: YUM), and the country's growth potential has spurred many investors' excitement.
But penetrating other cultures isn't always easy, as China has proven time and again. Some sources report a degree of Chinese consumer backlash against Western brands. Starbucks got the boot from Beijing's Forbidden City, and even such capable companies as eBay (Nasdaq: EBAY) have had a hard time breaking into China.
Even though Wal-Mart's historical low-price schtick may seem like a no-brainer to attract Chinese consumers, the company's arguable difficulty in adjusting to the changing face of American consumers makes me wonder how well it will adapt to serve foreign markets. Concerned investors may want to monitor how Wal-Mart fares in Japan. It recently upped the ante there instead of retreating, and its ability to crack that particular market might demonstrate welcome adaptability.
I'm not a big fan of Wal-Mart as a potential investment. It's still suffering from numerous image problems, a strategic issue that may explain why it's struggling to grow its U.S. customer base beyond its core low-income demographic. China may be a ripe market for U.S. companies, but I'd hardly call it risk-free. Sure, Wal-Mart might drum up massive growth in China. But the odds seem equally good -- for Wal-Mart or any other company -- that it won't.
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