China Attracts Western Retailers Willing to Learn Its Ways

It’s a Monday afternoon, just a few shopping days before last week’s advent of the Year of the Ox, and the aisles of the Wal-Mart “supercenter” are jam-packed with bargain hunters pushing carts loaded high with food, kitchen appliances and clothing.

This could be the pre-holiday shopping rush at any Wal-Mart store anywhere in Middle America. But the customers here are China’s nouveau riches from one of the wealthiest of the Middle Kingdom’s southern cities. And alongside the recognizable American fare--Campbell’s soup, Bounty paper towels and Gillette shaving cream--there are delicacies with distinctly Chinese characteristics.

Down one aisle are the racks of dried fish and preserved plums, not far from the various flavors of watermelon seeds. One shelf is stacked high with soya bean milk and another carries multiple brands of congee, a popular southern Chinese breakfast dish, for nearly every taste. There are nam yue peanuts, stacks and stacks of instant noodles, and packets of preserved bamboo shoots. And in the back, in the liquor section, is the three-snake rice wine, with the dead serpents’ bodies coiled together in the potent liquid.

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Megastores such as this one have opened in a number of Chinese cities, as America’s retail giants discover the world’s largest potential market--or 2 billion armpits waiting for someone to sell them deodorant, as the title of a recent book sums up the business rush. “It boggles the mind to think if everybody washed their hair every day, how much shampoo you would sell,” said Joe Hatfield, Wal-Mart’s chief operating officer. He added, “It will get more competitive before it’s all over.”

Over the years, not a few foreign companies have entered China with similar stars in their eyes, and they are not always happy with what they find. Doing business here carries serious risk--from officials who feel free to change the rules of commerce overnight, for instance, and from potential political instability and shoppers whose preferences don’t always match American products.

Still, as a middle class with big buying power emerges, many foreign retailers are opting to take the risk. Wal-Mart opened its first superstore in China in August, here in one of the country’s most prosperous “special economic zones” across the border from Hong Kong. On the outskirts of the city is another first in China, Wal-Mart’s companion store. It offers shoppers even more of the American “warehouse store” feel: The aisles are wider; the selection of televisions, stereos and cosmetics is more high-end; and the buying is almost exclusively in bulk.

In addition to Wal-Mart and Sam’s--creations of the late entrepreneur Sam Walton--China is now also home to a Vanguard store, which opened close by Wal-Mart here in Shenzhen; a Macro store in Guangzhou province; a Home Way (a cousin to Home Depot in the United States) in Tianjin; and in Beijing, a Pricesmart, the international successor to the megastore concept originated by the Price brothers, who founded Price Club about 25 years ago. The French are also getting into the China retailing act, with Carrefour now open near Shekou, the port at the western end of the special economic zone.

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But even as the mega-retailers rush for a share of the Chinese market, they are learning that the ways and the tastes of the East can be very different indeed. What sells on Main Street U.S.A. doesn’t always translate in Shenzhen or Shanghai.

At Beijing’s sprawling Pricesmart store, for example, the company designed two huge loading docks that could accommodate full-sized diesel trucks, in anticipation of the big deliveries needed to keep the shelves well-stacked. What they found, though, was that many of their Chinese distributors were far smaller in scale, arriving with goods in car trunks, on three-wheel pedicabs or strapped to the backs of bicycles. A separate, smaller dock had to be added just for bikes.

“It’s amazing what you can put on one of those three-wheeled bicycles,” said marketing director Brian Meyers.

Correctly interpreting Chinese customs also provides a formidable challenge to the Western retail entrepreneurs. In what Wal-Mart executives acknowledge was one of their earliest errors, the company brought in large quantities of boxed powdered detergent; what they didn’t count on was southern China’s oppressive summer humidity, which can turn powdery Tide into unwieldy clumps.

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The learning curve was formidable in the Chinese market. Right Guard deodorant and shaving products don’t sell because they are priced at four times what they would cost in the United States. But electronics--including televisions and stereos--turned into a big business. Auto parts don’t make it. Rice cookers and American cosmetics are in high demand.

Still, Hatfield said, “I’d say we made more right decisions than wrong.”