Industry watchers claim Wal-Mart is losing market share in China

Industry watchers claim Wal-Mart is losing market share in China

Greg Foran, who moved from Woolworths Ltd to Wal-Mart last autumn, has been named as the US retail giant's new chief in China. As Dean Best writes, Foran is taking charge of one of Wal-Mart's most challenging businesses.

For all its potential, China can be a very difficult market in which to operate. Dealing with a fragmented supply chain, an under-developed distribution network in large parts of the country and meeting the demands of local consumers make it hard to build a successful business in what is now the world's second-largest economy.

And, for all its might worldwide, Wal-Mart Stores has not found it easy in China. In 15 years in the country, Wal-Mart has developed a network of around 370 stores in 140 cities. However, in recent years, particularly in the last 12 months, the world's largest retailer has found the going tough, amid fierce competiton from domestic and international rivals, a raft of senior executives leaving the business and a labelling scandal that led to stores being closed and a police investigation.

Last week, Wal-Mart named Greg Foran, a former Woolworths Ltd executive, as the new CEO of its Chinese operations. Foran joined Wal-Mart in October after a decade at Australia's largest retailer. There were rumours that Foran had been overlooked for the top job at Woolworths, which had named colleague Grant O'Brien as its new chief executive three months earlier. Wal-Mart was cagey about Foran's role when he was appointed, saying only that he was a senior vice-president reporting into Doug McMillon, the head of Wal-Mart's international operations.

Now we know. However, Foran's appointment has raised eyebrows, not least because of his apparent lack of experience of working in China. Multinational operators often talk of tapping into local knowledge of emerging markets and, given the challenges Wal-Mart faces, it was surprising to some that the retail giant plumped for someone deemed to be an outsider.

James Roy, a senior analyst at China Market Research Group, says firms often appoint someone with deep knowledge of a particular market or an executive steeped in the workings of the company. Foran, he tells just-food, "falls outside both of those categories".

He says: "What it could be is that Wal-Mart is bringing in somebody that is very knowledgeable about operations and would improve how things are run here. That's a possibility."

Improving the operational performance of Wal-Mart's business in China is a central reason for the appointment, argues Torsten Stocker, head of US consulting firm Monitor Group's China consumer goods practice.

"It is interesting that the new CEO is neither a Wal-Mart guy nor a 'China Hand'. Maybe this points towards a greater focus on enhancing core retail capabilities at Wal-Mart, for which a strong operator is more critical than someone with local market knowledge," Stocker says. "Many retailers in China, including Wal-Mart, have reached a point where they need to transition from land-grab expansion to enhancing their operational capabilities and profitability. Direct costs such as labour and rent have been increasing."

Roy acknowledges that rising food, labour and rental costs in China make it "extremely critical" that a retailer has senior executives adept at improving the operations of the network. However, the analyst suggests that Foran will quickly learn that Wal-Mart has found it difficult to cater to the demands of Chinese consumers and that the retailer needs to change the way it does business.

"A really key challenge he is going to face is adapting to the Chinese market. It's not something Wal-Mart has been really good at," Roy says. "A key pressing issue is adapting their model to the way Chinese consumers are shopping. Walking away from the big-box retail model to something that's more of a local shopping experience. The problem with the way Wal-Mart is set up is its locations are very focused on big areas and tend to be in out of the way parts of town. There are fewer smaller, more central or more localised, neighbourhood-type stores and that really deters a lot of people from considering going there."

Another issue that might have recently stopped consumers from shopping at Wal-Mart was the labelling scandal that embroiled the business last autumn. The labelling of conventional pork as organic led to outlets being closed, staff arrested and police to investigate the retailer. Repairing Wal-Mart's image, particularly with the company facing competition from international rivals like Carrefour, Tesco and Auchan, as well as domestic retailers like Lianhua, will be right at the top of Foran's in-tray.

And Foran will be leading a relatively new senior team at the top of Wal-Mart's Chinese operations. In the last year, Wal-Mart has seen a series of top executives leave the business in China. Foran's predecessor, Ed Chan, resigned in October amid the labelling scanal, although the retailer insisted it was for personal reasons.

In May and June last year, three other executives, including COO Rob Cissell, left "to explore other opportunities". They have since been replaced by the head of finance for Wal-Mart's operations in Canada and the finance chief from its business in Chile, although a company veteran, Del Sloenker, returned to the lead its hypermarkets in China after a stint at a private-equity fund focused on investing in the country.

Roy argues that China is different to many of the countries in which Wal-Mart operates and Foran, if he does not know the market inside out, will need support from a team that understands its intricacies.

"He needs good lieutenants, if you will, who have very strong on-the-ground experience," Roy says. "They had to replace a number of very top people. The people reporting to them are going to have to really understand the local market and be able to communicate to them."

For a man who spent ten years at Australia's largest retailer, running the world's largest retailer's operations in the key emerging market will be a whole new challenge.