Monday, October 8, 2007

Wal-Mart's China Plans

Wal-Mart (WMT), the world's largest retailer, has announced plans to more than double its stores in China in the next 5 years in an effort to tap the growing personal wealth of the country's over 1 billion people.

The planned expansion will enable the company to increase its reach beyond its current 84 stores across 46 Chinese cities into smaller cities. Wal-Mart has already opened 12 stores in China to date and is well on track to beat 2006's total of 15. It sped up its expansion earlier this year by acquiring a 35 percent stake in China's Trust-Mart and then said the move may lead to its taking a controlling ownership of Trust- Mart's more than 100 hypermarkets but no further details have been announced.

The US may be "Wal-Marted out" but in foreign nations, the retail giant is not only well liked, but coveted. The fact that Wal-Mart to date has increased same store sales overseas at an almost 16% clip this year underscores that popularity. This is the right move for Wal-Mart. Domestically, monies should be invested in refurbishing old stores, increasing the dividend and buying back stock by the truckload at its current levels. Any aggressive expansion plans need to be relegated to international operation as this is clearly the best use of funds in that area.

The recent deal with India illustrates that even the historically most reluctant atmospheres for "outsiders" recognizes the value and expertise Wal-Mart brings to the table. What folks at Wal-Mart need to do is stop looking at Target (TGT) as it's competition and recognize that it is the largest global retailer and focus its effort on that goal to truly reward shareholders. There is not any reason, like most of the S&P 500 currently that Wal-Mart should not be getting the majority of it profits from its international operations in a few years.

If they are making real progress in that area, Lee Scott really missed a big opportunity,,,


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