Wal-Mart, the world's biggest retailer, said Tuesday it had bought 35 percent of a 101-store hypermarket chain in China, in a dramatic bid to better reach the nation's increasingly affluent customers.
The US retail giant, which did not disclose how much it paid for the stake in Taiwan-owned Trust-Mart, said that it aimed for ownership control in about three years' time, subject to "certain conditions."
"We're talking about 2010, around that timeframe," Wal-Mart spokesman Jonathan Dong told AFP.
Wal-Mart vice chairman Michael Duke said in a statement that the investment was "an important step in bringing additional scale to our China retail business."
Based on the most recent sales figures available, the combined forces of Wal-Mart and Trust-Mart would seem to topple Carrefour of France from its current position as the dominant foreign retailer in China.
"Wal-Mart could rise to number one," said a Beijing-based analyst, who asked not to be named.
"But Carrefour and domestic players are also very focused on the China business, so competition is still there."
Carrefour posted sales of 17.4 billion yuan (2.2 billion US dollars) in 2005, compared with 13.2 billion yuan for Trust-Mart and 9.9 billion yuan for Wal-Mart, data from the China Chain Store and Franchise Association showed.
Analyst quoted rumours in the market that Wal-Mart, which currently operates 75 stores in China, agreed to pay one billion US dollars for the acquisition.
"If it is indeed one billion US dollars, I don't think they've made a good deal," said Chen Chen, a Shanghai-based retail analyst with Citic Securities. "One billion yuan (130 million US dollars) would be more suitable."
Carrefour, which has 90 hypermarkets in China, said late last year it decided not to bid for Trust-Mart after determining that organic growth would be a more suitable strategy in the Chinese market.
Wal-Mart currently operates 75 stores in China, employing 37,000 people, while the 101 Trust-Mart stores have a staff of more than 31,000.
The two will continue to operate under their respective banners, and both companies plan to continue expanding their chains separately on the mainland, the statement said.
"The two companies will operate as two stand-alone companies. Both Wall-Mart and Trust-Mart are very good names in the retail market," said Dong.
"They have lots of name recognition. Both brand names have great value for the customers. We want to keep that."
Trust-Mart chairman John Yu said the alliance would help the company benefit from Wal-Mart's experience in logistics and operations.
But even as consolidation is taking place, local companies remain dominant in the Chinese retail market.
For instance, Bailian Group, China's largest retailer, posted sales of 72.1 billion yuan in 2005, more than three times the combined sales of Wal-Mart and Trust-Mart, according to the China Chain Store and Franchise Association.
This shows the importance of developing a localized identity, according to Chen, the Shanghai-based analyst.
"Just because you're the biggest retailer in the world, you won't necessarily succeed in this market," she said.
"Carrefour is already showing the characteristics of a company that's gone native, but Wal-Mart hasn't quite gotten there yet."