Current Date and Time:Friday, July 30th, 2010
Date: March 12th, 2010How Should Wal-Mart Expand in China?
At a conservative estimate of 300 million people, China has developed the world's largest middle class. However, the Mainlanders (Mainland Chinese) define middle class much more differently than how we Americans classify middle-classdom. Aside from the income threshold, the Chinese only consider themselves middle class if they own their own apartment (no mortgage), saved 3 years worth of salary, and own a car (some Chinese also considers the ability to take care of their elderly parents as being wealthy). The Chinese middle class also spends their money quite differently from American or Western middle class, they have no concept of "keeping up with the Joneses'". The Mainlanders are renowned for their frugality and iron-discipline when it comes to saving money, a major source of annoyance for the West. Therefore, it is incumbent upon Wal-Mart, the world's largest retailer, to outChinese the Chinese and rightfully become the dominant retailer in China. Sam would be proud.
In order to achieve dominance in China, Wal-Mart must modify its business model (after 2 years of having the word change ram down my brain, I'm using the word modify instead). As of this writing, Wal-Mart "only" has about 150 stores in China; 3 of these are Sam's Club. Yes, I want Wal-Mart to continue developing more Sam's Clubs in posh areas like Shanghai, Beijing and Shenzhen, but more importantly, what I would like for Wal-Mart to do is: Convert its regular stores into more of a Sam's Club warehouse/wholesale type of operation featuring groceries, but without the more expensive items normally found at flagship Sam's Club stores. Within the last couple of years, British retailer Tesco has taken some market share in Beijing and Shanghai by focusing on the "shopping experience". I think Tesco has it completely wrong and Wal-Mart should not follow suit. A great shopping experience might work in Shanghai and Beijing but if you want to expand beyond the cosmopolitan areas, you have to focus on price. The rank and file Chinese loves value more than anything else. Especially if you consider the fact that although a middle class of 300 million sounds impressive, 300 million only represents about 22 percent of the entire nation. The rank and file Chinese are now just coming into their own; their wages are rising (due to a labor shortage and investment in human capital); they finally have a little bit of cash in their pockets. It's the rank and file that Wal-Mart must focus on; it is these Chinese that Wal-Mart must serve in order to be a dominant player in China. Of all the western companies operating in China, in all sectors, only Wal-Mart has the global business infrastructure, clout, and economy of scale to be massively successful in its expansion away from the major metropolitan areas, into Western China.
It's rather ironic, in the United States, Wal-Mart is the spawn of Satan, but in China, Wal-Mart has the potential to be a symbol of American greatness. Imagine this: An American store selling American beef, pork, chicken, fish, beer, pasta, rice (Arkansas and Texas could produce more rice than the Chinese can ever hope to consume), soy beans (California alone out produces China in this crop), and in the back lot of Wal-Mart stores, you can sell John Deere tractors to Chinese farmers. I'm emphasizing agricultural products because even though China has the same landmass as the United States, minus Alaska, only about 10 percent of China's landmass is arable. And in addition, the Chinese lack the agriculturally technology and efficiency that American farmers have mastered. In other words, we can produce higher quality foods, in less time, using less resources than the Chinese (or anybody else for that matter AND we don't need to chop down rain forests to achieve it). It is this fact that I think China can potentially become THE biggest market for the United States and for Wal-Mart. We are a nation of 300 million people; China has 1.3 billion, so we stand to profit a lot more than they have from us thus far. This is the reason why I mentioned the burgeoning Chinese middle class in my opening paragraph, because the wealthier China becomes, the more Wal-Mart and America benefits. Let's face it, the rest of the world is flat broke, we're hardly making any profits from them. Most of the time, American products are given away for free (thank you taxpayers, we're the world's de facto benefactor and they thank us by sending terrorists to our country). Going forward, China's wealth will ironically be the driving force for our capitalism (outChineseing the Chinese).
Of course this scenario can quickly change if American politician resort to short-sighted protectionism in order to win elections. For every action there is an equal and opposite reaction. The Chinese can buy their foods from Brazil, Argentina or even the Ukraine. Politics is local after all, and Chinese politicians have to answer to their constituents as well. Placing tariffs and placing embargos on Chinese products actually hurts poor and lower middle class Americans more than the Chinese because the Chinese has already made enough money to develop a massive domestic market (again 1.3 billion people). The Chinese obviously knows this, that's why they haven't budged on re-valuing renminbi and they don't flinch when we threaten them with tariffs and embargos. I'm seeing a service industry developing in China that will be the mother of all service industries. China's National People's Congress has approved a 10 US dollar per person increase for social services just last week. 10 US dollars might not sound like much but multiply that amount by 1.3 billion each year. The question for us is this: Can American companies like Wal-Mart capture this business or will it go to foreign companies that cannot even touch us in quality and value.
~Huy Nguyen
I went to Sam's Club over the weekend; the parking lot was so full of vehicles that I had to park about a quarter of a mile away. Whilst strolling through the parking lot, I noticed that every 5th vehicle was a Prius and every 4th vehicle was a hybrid Lexus SUV. And nearly every vehicle had a "Yes We Can" sticker attached to it. I couldn't help but chuckle, 6 years ago I walked through the same parking lot and all I saw then were pickup trucks and domestic mini-vans adorned with National Rifle Association stickers.
One of my favorite things to buy at Sam's Club is ... wine, yup, VINO! The wine value at Sam's is phenomenal but without the exorbitant prices like at those pretentious – posh stores. And as luck would have it, the wine aisles was full of Prius / hybrid Lexus driving – milky white thighs that I saw shopping at those pretentious – posh stores a couple of years ago. Except this time, they did not have their pompous, hypocrite noses in the air. In fact, they seem rather embarrassed to be seen shopping at Sam's, the lot of them.
So after picking up a case of my favorite Pinot, I headed for the sporting goods department to pick up some bulk .22 ammunition. To my amazement , the usual flannel and work boots crowd was replaced with Jimmy Choo and Prada adorned milky white thighs. Actual conversation I overheard at the ammo counter:
While waiting in the longer than usual check-out line, I noticed people holding keys with the little Costco card attached to it. How ironic. I guess they were at Sam's to stock up on Coke.
In all the years that I've shopped at Sam's Club, my guesstimate is that half of the people that shop here hasn't realized that Sam's Club is owned by Wal-Mart. I don't know if they are in denial or what, but what I do know is that the checkout lines are much too long and there are hardly any parking spaces left.
A company for and of the people, during a recession that is. Costco cannot touch Wal-Mart's (WMT) numbers. Target? Please. The deeper
we sink into this recession, the more valuable WMT becomes. Conversely, if there are signs of recovery, then WMT will
trade at a lower price. Recession or no recession, WMT is still an easy and juicy whipping boy for Greeniks,
Pajamaviks, and phony Republicans that are nothing more than a bunch of nannyist liberals in disguise. I personally
like WMT a lot if it's trading at around $47 per share.
~Huy Nguyen
Steve Jobs is overrated as a CEO. Imperial hubris is detrimental to emperors and corporate executives.
Unfortunately for Apple shareholders, Jobs never learn this lesson. Instead of spending the company's money on
those silly, condescending anti-Microsoft commercials, he should've allocated that
money to research and development on products that's priced more appropriately during
period of economic recession. Jobs would like Apple investors to believe that Microsoft
is Apple's only competition. Well, here's a dose of reality: Intel processors now power
Macintosh computers which runs Microsoft software (Intel was once an Apple arch
rival). And one more thing, walk into any electronic store and look at the dozens of iPod
clones for sale. Oh how the mighty has fallen.
Starting tomorrow the 3G iPhone will be sold in Wal-Mart stores. I spent about an hour today at Apple Inc's official website,
there was absolutely no mentioning of this fact whatsoever. Wal-Mart, on the other hand, proudly announced the iPhone deal on
December 23rd. (By the way, the iPod has been sold in Wal-Mart for several years now.) This is not some great marketing plan
by Mr. Jobs, this is, in fact an act of attrition, more like desperation really. Oh how the mighty has fallen.
While the Apple cachet has certainly lost a lot of its luster, this is just another feather in the cap of Wal-Mart. This deal
is further proof that Wal-Mart is the Julius Caesar of the retail world. Wal-Mart stock holders will continue to be rewarded
during this recession while Apple investors suffers at the hands of Apple's executive mis-management team.
~Huy Nguyen
| Purchased Price | Current Price |
|---|---|
| 42.00 | 51.50 |
