Wal-Mart said Tuesday that it purchased a 35 percent stake in Taiwanese retailer Trust-Mart, which will more than double its retail footprint in China and allow the company to surpass global rival Carrefour by store count in the world’s most populous nation.
Wal-Mart, which rang up $77.1 billion in sales outside the U.S. in 2006, is increasingly looking to its worldwide operations to drive growth, which is slowing in its U.S. stores. Wal-Mart president and chief executive officer H. Lee Scott has cited emerging markets in Russia and China, along with India, as major future opportunities. The retailer generated total revenues of $352 billion last year.
The Bentonville, Ark.-based retailer has the option to acquire ownership control of Trust-Mart parent Bounteous Co. Ltd. by 2010, for a total investment of about $1 billion, according to published reports.
In a separate development, the world’s largest retailer is said to be in talks to acquire Russian hypermarket chain Karusel, Reuters reported. A Wal-Mart International spokeswoman declined to comment.
Wal-Mart vice chairman Michael Duke described the Trust-Mart deal as “an important step in bringing additional scale to our China retail business.”
The price tag cited, costlier than Wal-Mart’s recent acquisitions of South and Central America retailers, reflects China’s potential consumer clout. The move also shows Wal-Mart’s focus on key global markets since shedding money-losing operations in Germany and South Korea last year. However, Wal-Mart faces challenges in China ranging from inadequate infrastructure to government regulation and intense competition.
Trust-Mart has one of the widest geographical reaches among Chinese hypermarket operators, running 101 stores in 34 cities. Wal-Mart has 71 Supercenters and clubs in China, and has not released its expansion plans for this year, the Wal-Mart International spokeswoman said.
In a research note, Citigroup analyst Deborah Weinswig characterized Wal-Mart as the 10th largest retailer in China, with about 0.3 percent market share. She said the acquisition indicates the company’s interest in expanding in the “high-growth Chinese retail market.”
The spokeswoman said Wal-Mart and Trust-Mart will continue to operate separately, but will share logistics and operations expertise.
“We will dispatch a team of experts to work with Trust-Mart to find synergies and areas where we can learn from each other,” she said.
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Wal-Mart may also potentially gain merchandising insight and native Chinese management talent through its ties with Trust-Mart. Chinese retail is expanding faster than the pool of trained executives, prompting Wal-Mart to double the number of managers in some of its stores in order to ready talent in advance of store openings.