Considering its 5,000 stores worldwide, you might be tempted to think that Wal-Mart (NYSE:WMT) has saturated every corner of the globe with its big boxes, much as Starbucks (NASDAQ:SBUX) has inundated every street corner with its coffee shops. But there are still markets left to conquer and shoppers who have yet to know the fun of falling prices, and one of the biggest untapped arenas is China.
With the country eliminating regulations next month that hampered foreign investment, Wal-Mart announced plans to add 10 more stores to its roster to have a total of 43 by year's end. That would place it just behind French retailer Carrefour, which already operates 53 superstores in China and wants to add 15 more a year, but ahead of German giant Metro AG, which plans to add 10 of its own Cash & Carry stores next year to the 21 that already exist. Some 70% of the world's top 50 retailers do business in China, and Wal-Mart has designs on further overseas expansion. Target (NYSE:TGT) has also opened its own procurement centers there.
China's massive retail market, valued at anywhere from $240 billion to $550 billion, will undoubtedly see an even greater influx of retailers as regulations that require joint ventures with local stores fall by the wayside. Going as well are rules that mandate investment in only certain geographic areas and minimum turnover and asset criteria. Overseas retailers will be able to open outlets in any city in the country. The market, as big as it is, still pales next to Asia's largest, the Japanese $1.2 trillion market.
Wal-Mart has turned its successful U.S. growth strategy on its head. Whereas the discounter rose to prominence by setting up shop in hundreds of small towns across the country before expanding to larger cities, it began its China endeavor in the big cities such as Beijing and Nanjing and will now be sprawling out to so-called second-tier cities. The company purchased some $15 billion worth of local goods last year -- up from $12 billion the year before -- which accounted for 95% of its Chinese sales. Wal-Mart lost approximately $320 million on its China operations last year but expects to break even this year, and it should be buying locally some $25 billion worth of goods within three years.
It is estimated that China will evolve into a $2.4 trillion retail market by 2020, experiencing growth of at least 10% annually. Average disposable income in urban areas topped $1,000 for the first time last year, rising 40% from 1999. While China's population of 1.3 billion people might seem to be equal to the number of baristas employed by Starbucks, it represents a tangible resource upon which Wal-Mart can continue to grow its business and perhaps provide investors with additional growth prospects for their portfolios.
Fool contributor Rich Duprey considers himself to be an intangible resource. He does not own any of the stocks mentioned in this article.
