On the day Walmart was named the world's largest company by Fortune for the seventh time, its Beijing Zhichun Road store, open for 15 years, posted a closure notice. This means Walmart China is facing the same challenge that all international companies must confront. The Q2 earnings report released tonight directly confirms this predicament: quarterly revenue was $137.7 billion, up 5.6% year-over-year, but international business declined 6.8% year-over-year. Source: AI Finance and Economics (ID: aicjnews) World's largest company, yet closing stores due to high rent. "It's not even 4 o'clock, why aren't you letting us in?" customers questioned the security guard at Walmart's Beijing Zhichun Road store on the afternoon of August 15. It was a sultry afternoon; some had ridden several kilometers, sweating profusely, just to stock up before the store closed on August 17, only to leave empty-handed. "After 3:30, it's exit only, and there's nothing left inside anyway, not even bottled water," the guard explained repeatedly, flustered. Photo by Chen Fang Walmart's Beijing Zhichun Road store was an old location with a sales area of 18,000 square meters, open for 15 years. On August 10, it ended its operations with a closure notice, without giving a reason. The security guard told AI Finance and Economics: "The lease expired, rent increased too much, and we couldn't afford it." Coincidentally, on the same day, Walmart again topped the Fortune Global 500 list, marking its seventh consecutive year as the world's largest company. Its ranking metrics showed Walmart's revenue of $523.96 billion was nearly twice Amazon's and more than seven times Alibaba's. Walmart is not just big but also profitable. In 2019, Walmart's profit was $14.88 billion, $118 million more than the combined profits of the second-ranked Sinopec and third-ranked State Grid, and $3.29 billion more than Amazon, ranking 26th globally in profit. The 58-year-old global retail giant's top ranking is mainly due to its strong performance in its home market, the U.S. With strategies like "Everyday Low Prices" and "Customer First," Walmart crushed competitors and became the largest U.S. retailer in 1990. In 2019, the U.S. contributed 76.82% of Walmart's revenue, while international revenue, including China, accounted for only 23.18%. Walmart has been in China for 24 years, but unfortunately, it hasn't replicated its success there, never breaking into the top three of China's top 100 retail chains. In recent years, Walmart has frequently been embroiled in store closures. The just-closed Beijing Zhichun Road store is the sixth Walmart store closed this year, the others being Guangzhou Huangshi, Guangzhou Panyu, Nanjing Qinhuai, Chongqing Jiulong Plaza, and Jiaxing Shuangxi Road. Photo by Chen Fang AI Finance and Economics found that from 2016 to 2019, Walmart closed 74 stores in China. Including the six closed this year, Walmart has closed a total of 80 stores in less than four years. According to the China Chain Store & Franchise Association, as of 2019, Walmart had 442 stores, with total store count nearly unchanged for six years; in 2014, it already had 441 stores. Most of these closed stores were hypermarkets. This once-sunrise format enjoyed "super-national treatment" like rent-free periods for years, but now it's a sunset format. In Wanda Plazas, Walmart was once a standard tenant and a highlight for attracting businesses; Wanda could offer better terms than other tenants, but that's no longer the case. The Lhasa Wanda Plaza, opened on August 8, chose Yonghui Superstores instead. After all, in the Chinese market, Walmart's growth lags far behind competitors; Yonghui Superstores is the new favorite. In 2019, Walmart China's revenue was 82.28 billion yuan, up only 3.8% year-over-year, far below Yonghui's 21.3% growth rate and 0.3 percentage points lower than the average 4.1% growth of the top 100 supermarket chains. This caused its position in the retail industry to plummet. In 2019, Walmart broke its streak of ranking fifth in China's top 100 retail chains for six consecutive years, dropping to seventh, a position worse than in 2012. That year, Walmart had finally climbed from ninth place, where it had sat for four years, to sixth. However, Walmart's former China President and CEO, Chen Wenyuan, was still satisfied with the performance. In January this year, he revealed: "Walmart achieved its best results in China in five years and is now one of the largest omni-channel retailers in China." -01- Frequent Leadership Changes Whether Chen Wenyuan was satisfied no longer matters; four months later, Walmart replaced him. On May 7 this year, Walmart suddenly announced that Chen Wenyuan would resign as President and CEO of Walmart China on June 15 due to personal reasons. This was just over two years after he took office on March 1, 2018. Walmart's decision surprised industry insiders, especially since Chen had formulated a 5-7 year development plan for Walmart China at the end of last year, claiming it would add 500 new stores and cloud warehouses in China. However, during Chen's tenure, Walmart China's growth was weak, with growth rates in the low single digits. Even the Q3 2019 results that satisfied Chen showed only 6.3% revenue growth and a 2.2% decline in profit year-over-year. Replacing Chen was Zhu Xiaojing, former President of Fonterra's Greater China region. With this, Walmart China welcomed its seventh leader and first female leader. A source told AI Finance and Economics that Zhu is currently understanding Walmart's business and formulating future development strategies. Regarding why Zhu was chosen, Walmart's Global Executive Vice President and CEO of Global Sourcing and Asia, Qiu Mingde, explained that during her time at Fonterra, Zhu led channel transformation and digital adoption, making Fonterra's products rank first in market share across multiple categories. "Currently, China's retail industry is undergoing disruptive changes, and Walmart needs a 'consumer-centric' CEO to continue leading Walmart China to success." Photo by VCG Counting this, Zhu is the sixth time Walmart China has changed its leader. Except for the first, Zhong Haowei, and the second, Chen Yaochang, the remaining leaders have not lasted long. Some even summarized, "Since 2012, Walmart has, on average, removed a China president every two years." Each change in leadership brings strategic adjustments, inevitably affecting development. AI Finance and Economics found that "pioneer" Zhong Haowei held the top position at Walmart China the longest, 12 years, but he couldn't make Walmart China profitable and left in 2006. "Developer" Chen Yaochang lasted five years, leading rapid growth, but was forced to resign in October 2011 due to corruption issues and selling fake "green pork." Of the remaining four, the third, Gao Fulan, the fourth, Ke Junxian, and the sixth, Chen Wenyuan, each served about two years, while the fifth, Dirk, served less than two. In contrast, since 2014, Walmart China's revenue growth has never returned to double digits. Retail and marketing expert Ding Liguo analyzed: "Walmart China's frequent leadership changes are because China's development hasn't met Walmart's expectations." Along with high-level changes, talent attrition has been severe, affecting Walmart China's development. Lao Xue, a former employee who worked at Walmart for four years, told AI Finance and Economics that in 2001, over 200 management trainees joined with him. Walmart provided room and board for a year of training in Shenzhen, covering retail theory and practice, but now most have left, with only one or two remaining. Even employees who worked for over a decade eventually left. Several former Walmart employees known to AI Finance and Economics, with tenures ranging from three to 17 years, have gone to companies like JD.com, Meituan, and Suning. Competitors treat Walmart as a "Whampoa Military Academy," poaching talent when needed. As early as 2013, Walmart's Asia President, Beth Ford, said at an investor conference that continuous talent attrition had depleted local talent. As a result, Walmart has had to seek talent from other industries to take over its China business. Unlike Zhong Haowei, who was a Walmart lifer, the other six leaders of Walmart China all worked elsewhere. Among them, Zhu Xiaojing and Chen Wenyuan were parachuted in. -02- Localization Integration as a Challenge Besides human factors, Walmart China faces the dilemma all international companies encounter: should it stick to its own model or localize? And how to strike the balance? "Walmart China is too much like Walmart U.S.; top management is all foreigners, with complete processes, standards, and emergency mechanisms, but it's somewhat out of touch in China. That's why it hasn't done well here," Lao Xue lamented. Indeed, for 24 years, Walmart China has tried to find a balance between the U.S. model and Chinese localization. In Zhong Haowei's era, Walmart China completely copied the U.S. model, hoping to replicate success. Zhang Xinyu, a former Walmart employee, wrote that Walmart initially adhered to "fundamentalism," avoiding frequent promotions to tempt customers into buying unnecessary items. To control supplier costs, Walmart even limited the entry of in-store promoters. But this didn't suit China, where consumers prefer to stock up during promotions, and a single promoter could make a product a star. "Reasonable store layout, sufficient business scale, and flexible and efficient distribution are Walmart's core competitiveness, enabling everyday low prices and high inventory turnover, but these advantages are constrained in China," Zhang Xinyu said. In the U.S., Walmart's distribution costs are 2-3% lower than competitors, but in its first decade in China, stores were scattered across South China, Northeast, North China, and Southwest, leading to high operating costs and no overall profit for ten years. That was still the golden decade for hypermarkets in China, and rival Carrefour adapted faster, holding the top spot among foreign hypermarkets for years. Chen Yaochang's era went in the opposite direction, giving Walmart China more autonomy. Through reforms, Walmart became less like "Walmart" and more like "Carrefour," charging suppliers fees, cutting store staff, requiring suppliers to provide promoters, increasing promotion frequency, and decentralizing purchasing to regions. After the "fake pork" incident, in 2012, under Gao Fulan, Walmart China returned to its original track, with autonomy centralized. By then, hypermarkets had lost their advantage in China, and e-commerce was surging. The China Chain Store & Franchise Association summarized that year as the slowest growth for chain store sales and store numbers. Looking back, the 10.8% revenue growth that year was relatively high; by 2019, it had fallen to 5.2%. Lao Xue said Walmart has the common big-company problem of reacting slowly to unprecedented events, and e-commerce's impact on Chinese retail has been far greater than in the U.S. In 2005, home appliances were a significant part of supermarket revenue, but now that share is shrinking as e-commerce eats into it. Initially, Walmart judged e-commerce as not a threat because online sales were still small. Ke Junxian previously told media: "I'm a traditional, old-fashioned person; I don't know if e-commerce can change people's habit of shopping in physical stores. After all, online accounts for only about 10% of the retail market." Seeing e-commerce's rapid growth, Walmart China once wrote to U.S. headquarters about the feasibility of online expansion, but it was rejected due to few stores and high logistics costs. By the time Walmart reacted, it was too late. -03- Walmart Unlikely to Exit China, But Community Stores Are Replacing Hypermarkets In Ding Liguo's view, the challenges Walmart faces in China are shared by all foreign retailers. China's market has its own peculiarities—strong e-commerce and rapidly evolving business formats, now moving from commercial 1.0 to 3.0. Foreign companies initially didn't understand, then couldn't adapt, and then couldn't keep up, so most chose to exit. In April this year, Wumart announced the completion of its acquisition of Metro China, taking an 80% stake. In June last year, Carrefour, the world's second-largest retailer, made headlines for selling its China business to Suning. Before that, E-Mart, Tesco, Dia, and other foreign retail brands had already exited China. Over 20 years ago, when foreign retail entered China, many cried "the wolf is coming," fearing they would wreak havoc. Over 20 years later, Chinese companies, learning from foreign counterparts, have overtaken them, washing the predecessors ashore. People wonder if Walmart will eventually exit China too. Based on information from AI Finance and Economics, this seems unlikely. As recently as November last year, Walmart announced at a developer conference plans to open 500 new stores and cloud warehouses in China over the next 5-7 years, including Walmart Supercenters, Sam's Club, and Walmart Community Stores. Photo from Sam's Club official website "Walmart is a giant, much stronger than Carrefour, and its U.S. base gives it enough strength to continue developing in China. Moreover, Walmart is a long-distance runner, advancing at its own pace in China. This is completely different from domestic companies, which often experience dramatic ups and downs," Ding Liguo analyzed. He told AI Finance and Economics that although Walmart focuses more on its home and North American markets, it has been trying hard to adapt to China, acquiring Yihaodian, investing in JD.com and Dada, developing Sam's Club, and digital marketing. Overall, Walmart China's local digital marketing is relatively well done among foreign companies. From Walmart China's official website, it is still opening stores in the first half of this year, but hypermarkets are clearly no longer the focus. In May, Walmart opened a smaller format in Futian, Shenzhen—a community store with only 3,000 SKUs, half of which are fresh food, such as ready-to-cook boiled beef and pork belly with cabbage, plus 2,000 SKUs supporting delivery to home. This year, "slimming down" has become a signature move for hypermarkets and similar formats. RT-Mart also announced it would focus on small and medium-sized supermarkets, while fresh food retailer Hema has made its "Hema Xiaoma" project the focus of store openings this year. At the end of last year, in an interview with AI Finance and Economics, Walmart revealed it would try more compact stores of around 5,000-6,000 square meters, and renovate over 200 hypermarkets in the next three years, nearly half of its current hypermarkets. Next are community stores. Flexible cloud warehouses can fill gaps anytime, mainly supporting delivery to home, which is essentially planning to cover any possible consumption scenario. For example, pushing customers online. The security guard at the Beijing Zhichun Road store kept telling customers: "It doesn't matter if the store closes; you can buy from Walmart on JD Daojia, and it can be delivered to your home." (At the request of the interviewee, Lao Xue is a pseudonym) Tips will be paid 400-2000 yuan upon adoption.