Top foreign retailers such as Wal-Mart and Carrefour plan to accelerate store openings in China this year to further strengthen their presence in the rapidly growing market.
"Wal-Mart intends to open 18 to 20 new stores throughout the country in 2006," Gao Jing, public relations manager of Wal-Mart China, tells China Business Weekly.
Gao says the retailer opened 13 new outlets in China in 2005, for growth of at least 35 percent.
Interestingly, when Wal-Mart's President and Chief Executive Officer Lee Scott visited China in late October, he said the company's goal was to open only 13 stores in 2006, to increase the total to 62.
The US-based retailer currently has 56 stores in 28 cities throughout China. These include 51 Wal-Mart Supercentres, three Sam's Clubs and two community stores.
"Foreign retailers are trying to grab a bigger part of the huge domestic retail market by opening stores," says Sun Luan, from China Securities.
With the national economy growing at more than 9 percent a year, China's retail market is expected to expand by 8 to 10 percent a year, to US$2.4 trillion by 2020.
With this in mind, Carrefour and Lotus have also announced expansion plans.
French retailer Carrefour will open around 20 new hypermarkets this year, says Wang Xiaozhong, public relations manager at Carrefour China. Carrefour currently leads foreign retailers in the Chinese market, with a total of 70 stores and sales of more than 20 billion yuan (US2.4 billion) in 2005.
Thailand-based Lotus Supercentre has also sped up its development over the past several years in an effort to catch up or even surpass its rivals.
In a Ministry of Commerce list last year of China's top 100 chain store operators in 2004, Carrefour ranked fifth, Wal-Mart 20th, and Lotus 21st. The new list for 2005 has not come out yet.
"We plan to have 100 stores by the end of this year," says Xiang Jun, who is in charge of Lotus' media communications. There were 69 Lotus Supercentres in 14 provinces and municipalities by the end of January, she says, adding that the period between 2004 and 2006 was characterized by rapid expansion.
China Securities's Sun Luan says the retail market in big cities like Shanghai has become crowded through years of development.
Foreign retailers have strengthened their presence in these big cities, but are also likely to pay attention to small and mid-sized cities, where there is more space for development, Sun says.
"Lotus has started to expand in mid-sized cities like Huai'an and Kunshan in (East China's) Jiangsu Province, and Jiangmen in (South China's) Guangdong Province," Xiang says.
The company will deepen its networks around its five logistics centres, two of which are in Shanghai and the others in Beijing, Wuhan and Guangdong, she says.
Wal-Mart also has ambitions to expand into second-tier markets. Over the past few months, it has opened stores in smaller cities such as Yuxi in Southwest China's Yunnan Province, Weifang in East China's Shandong Province, Wuhu in East China's Anhui Province, and Yueyang in Central China's Hunan Province. It is also looking into opening stores in even smaller cities, such as Shaoxing in East China's Zhejiang Province.
"We see surging demand for consumption in small and mid-sized cities, which offers us a good opportunity to expand our investment in China," said Dong Yuguo, a spokesman for Wal-Mart China, at the opening of Wal-Mart's third Beijing store in December.
The rapid expansion of foreign retailers poses big challenges to domestic companies, which are trying to expand to compete.
Beijing's leading retailer, WuMart, increased its number of stores in the capital to 100 through the recent acquisition of rival MerryMart. WuMart bought a 75 percent stake in Beijing's fourth largest retail store for 373.5 million yuan (US$46.7 million) earlier this year. The deal has given WuMart about 10 percent of the supermarket business in the capital.
Other domestic retailers are also planning for rapid expansion to survive and develop.
"It is important to strike a balance between store openings and profit making," says Sun Luan.
Wal-Mart opened its first store in Shanghai last July. Within two kilometers of this store, however, there is a Lotus Supercenter, a Hualian GMS, an NGS Supermarket, and a number of convenience stores.
This kind of face-to-face competition will hurt performance. That's why it's important to stay profitable over the long-term, Sun says. "Some local retailers have been declining."
