Click to read the original article for details Source: Time Online On the evening of August 17, Walmart (NYSE: WMT), the U.S. retailer that has topped the Fortune Global 500 for eight consecutive years, released its Q2 FY2022 earnings report. The report showed revenue of $141.01 billion (approximately RMB 908.94 billion), up 2.4% year-over-year. Net profit was $4.364 billion (approximately RMB 28.13 billion), down 32.2% from $6.439 billion (approximately RMB 41.505 billion) in the same period last year. Adjusted EPS was $1.78 for the quarter. Both revenue and net profit beat market expectations, which had forecast revenue of $137.14 billion and net profit of $4.352 billion. According to the report, revenue growth was mainly driven by U.S. sales, while the decline in net profit was primarily due to lower gross margins. In Q2, Walmart U.S. net sales were $98.2 billion, up 5.3% year-over-year, outpacing total revenue growth. Consolidated gross margin fell 15% during the quarter. Overseas Business Declines, Reversing 'Internationalization' In overseas markets, Walmart continued its downward trend. Q2 overseas sales were $23.035 billion, down 15.2% year-over-year. In Q1 FY2021, overseas sales had also fallen 8.3%. Walmart attributed the decline to divestitures and currency exchange effects. Since last year, Walmart has been shrinking operations in some countries and divesting related assets. In November 2020, Walmart announced the sale of a majority stake in its Japanese supermarket chain Seiyu to private equity firm KKR and Japanese e-commerce company Rakuten, valuing Seiyu at ¥172.5 billion. Under the agreement, KKR would acquire 65%, Rakuten 20%, and Walmart retain 15%. After initially investing in Seiyu in 2002, Walmart eventually spent over $2 billion to acquire the loss-making company. However, Seiyu's sales have remained flat, and after costs, it contributed almost no net income to Walmart over the years. Walmart also sold two other overseas assets. In October 2020, Walmart agreed to sell UK grocery chain Asda Group to a private investment group for $8.8 billion. Walmart said the deal would result in a non-cash after-tax loss of approximately $2.5 billion. In November, Walmart announced the sale of its Argentine retail business, leading to a non-cash after-tax loss of about $1 billion. These divestitures continued to impact Q2 overseas sales. Wang Guoping, a senior advisor to Lianshang.com, told Time Finance that for Walmart, overseas markets like Japan and the UK have limited growth potential. In such markets, rapid scale-up to gain bargaining power typically requires M&A, which demands long-term capital investment. "Although Walmart is a global giant, it only has advantages in certain regional markets, as physical retail is highly fragmented and regional. Cross-market M&A has yielded limited returns, so focusing on a few key markets is a better choice for Walmart," Wang said. Adjusting China Strategy, Closing Multiple Stores Walmart did not disclose specific revenue figures for China in this report. However, recent moves indicate a strategy focused on transformation. First, it is closing some hypermarkets. In August, stores in Beijing, Fuyang, Xi'an, and other cities were shut down. Since 2021, the number of closures has exceeded double digits. In 2020 alone, Walmart closed at least 7 stores. There have also been reports of Walmart selling its China business. In September last year, media reported that Walmart had approached some companies about selling a stake in its China hypermarket business. In May this year, rumors surfaced that Walmart planned to sell all stores in Northeast and North China to Chinese retailer Wumart for $3 billion. Walmart denied these rumors, stating it had no plans to sell its China business. Despite no intention to sell, Walmart's China business is clearly declining. In FY2019 and FY2020, net sales in China declined. In the first nine months of FY2021, Walmart China's sales of $8.735 billion accounted for only 2.16% of Walmart International's total sales. By Q1 FY2021, Walmart International sales continued to decline, and Walmart stopped disclosing China-specific data. The hypermarket format has lost its luster in China. Among the three major foreign retailers, Carrefour and Metro have already exited. Carrefour China sold 80% of its stake to Suning for RMB 4.8 billion in June last year, and Metro sold its China business to Wumart. Hypermarkets face the dilemma of exhausted rental dividends and irreversible declines in offline traffic. A Guangdong supermarket operator told Time Finance that only large-format stores like Sam's Club and Costco are still seeing offline traffic growth; other hypermarkets have seen years of decline. "Especially in first- and second-tier markets, hypermarket traffic is declining, hit hard by rent and e-commerce." On August 17, Zhuang Shuai, a retail e-commerce expert and founder of Bailian Consulting, told Time Finance that under the internet economy, e-commerce and community group buying have developed rapidly, severely impacting traditional hypermarkets. Additionally, China's large population, vast geography, and diverse consumption habits create a richer retail landscape compared to the U.S. Zhuang also noted that differences in government support for domestic and foreign retailers are another reason Walmart, as a foreign player, faces challenges in China. Walmart is now shifting its China strategy toward Sam's Club, a membership warehouse format with lower SKU counts and higher gross margins than traditional supermarkets. Walmart China has also said it plans to convert some eligible hypermarkets into Sam's Club stores. According to public data, Sam's Club has 33 stores in China with over 2 million members. By the end of 2022, it expects to have 40-45 stores open or under construction. Wang Guoping told Time Finance that the hypermarket format is becoming less aligned with first- and second-tier market demands, while membership warehouse formats like Sam's Club, with their bulk-selection model, are more suitable. Hypermarkets are better suited for lower-tier markets, prompting the industry to adjust formats. Sam's Club's U.S. performance shows steady growth. In Q2, U.S. Sam's Club same-store sales rose 13.9% to $18.6 billion. However, whether Sam's Club can boost Walmart China's performance remains uncertain. Sam's Club has not yet established an absolute advantage in store scale or brand loyalty. Its U.S. rival Costco, after explosive growth in the U.S., is accelerating expansion in China, with four stores in preparation besides its first Shanghai location. Even leading membership warehouse players like Sam's Club and Costco face uncertainty in China. There is insufficient evidence that this model can succeed and scale widely in China, given that Sam's Club has only opened 33 stores in 20 years, and Costco has just one. On August 17, Time Finance contacted Walmart China regarding Q2 operations and recent business developments but received no response by press time. PS: From September 23-25, 2021, the 2021 (4th) China FMCG Conference, organized by New Distribution, will be held in Shanghai. Focusing on industry trends, practical cases, and growth connections, 3,000 FMCG practitioners will gather. Ten themed forums cover new retail O2O, community group buying, short-video live e-commerce, distributor transformation, rise of new consumer brands, new wine and beverage insights, distributor B2B supply chain, omnichannel marketing, and B2B2C new technology applications, with operators from various segments sharing the latest case studies. Confirmed heavyweight guests include: 1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings; 3. Lu Xiuqiong, global expert partner at Bain & Company and former VP of marketing for Coca-Cola China; 4. Chen Xiaodong, senior VP of Nestlé Greater China; 5. Zhang Fujun, president of Lee Kum Kee China; 6. Bi Chaojiao, general manager of China Resources Snow Breweries marketing center; 7. Yang Hongbin, VP of Junlebao Dairy Group; 8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operations Center; 10. Li De, e-commerce general manager of Gold Hong Ye Paper Group... A grand gathering for FMCG professionals—you must be there! Are you "watching" me?