Retail traditions hit a wall at Wal-Mart China

But there’s another aspect of Zhong’s professional image – and Wal-Mart’s image as a big, U.S. retailer in China – that could be working against her. Like her employer, Zhong prides herself as a little old-fashioned, which means she favors traditional retailing with bricks-and-mortar stores.

As e-commerce spreads in China, Zhong and Wal-Mart face mounting pressure to adjust their business approach as well as update their attitudes. So far, though, the company appears more committed to the physical store business than cyber shopping in China.

Big stores and payrolls are pillars of the old-fashioned retail business model that some experts say are starting to teeter for companies such as Wal-Mart, which has over 400 outlets in China.

Basic retail real estate costs in China are rising fast. A recent report by PricewaterhouseCoopers and the China Chain Store & Franchise Association, for example, said that rental costs for commercial space in China rose an average 3 to 5 percent every year between last few years. Rents have been climbing more than 10 percent annually in some premium business locations.

Meanwhile, the report said, retail industry labor costs have been rising an average 10 percent annually in recent years.

And these costs have been rising even while retail industry growth has been slowing for the past seven years in a row. The sector grew 9.9 percent 2013, according to a report by the consultant Deloitte, which marked the first time this growth fell to single digits in seven years.

The report cited China’s current economic slowdown and e-commerce competition as reasons for the cooling growth among traditional retail companies.

Wang Xiao, an executive partner at PricewaterhouseCoopers’ China retail and consumer goods division, said the country’s consumer goods market is changing as e-commerce and social media empower consumers.

“Consumers can have more shopping conduits at their disposal,” Wang said. “All of these changes are having a far-reaching impact on China’s retail industry.”

Traditionally oriented Wal-Mart, which has enjoyed impressive performance for decades, has been among the retailers affected by the switch to online shopping.

To adapt, Zhong said Wal-Mart is directing more resources toward after-sale deliveries, particularly door-to-door free delivery services for customers within two kilometers of a store. It also plans to team up with product suppliers to sponsor promotions and price items according to what e-commerce retailers offer.

Zhong refused, however, to admit that these strategies were tailored to offset the impact of the Internet. Rather, she said, the plans emerged “out of Wal-Mart’s own needs.”

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About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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