Wal-Mart & China: A Mutually Beneficial Relationship

Wal-Mart (WMT), finally realizing its international sales growth is crushing domestic operations, said it expects to grow 30% annually in China, its most successful international operation to date.

In announcing the approval of its 100th store Monday, Terrence Cullen, vice-president of development for Wal-Mart in China, said "We intend to continue our aggressive, organic growth in China."

Here is the real sweet number. Since 1996, the China expansion Wal-Mart has undertaken has cost them a whopping $230 million. That is it! If we are going to put that into perspective, Wal-Mart pays shareholders almost $700 million per quarter in dividends. What Wal-Mart receives from China for the money it has invested is essentially a gimme.

There has been speculation that Wal-Mart is at the mercy of the Chinese gov't and that the growth there is precarious. Quite the contrary is true. Wal-Mart buys in excess of $18 billion annually from China, making it buy far the largest purchaser of goods from the country. If the Chinese have proven anything, they have shown they will not cut off their nose to spite their faces.

Wal-Mart and the Chinese officials have a very mutually beneficial relationship that will undoubtedly grow stronger as time passes. Good news for shareholders...

Comments

[sasian]

.. Must get the Chinese to start drinking milk ..

[pennystocks]

I am bearish on WMT. The growth story of the 70s and 80s is over for good. WMT was a terrific investment then, but at slowing growth rates, this stock won't go anywhere. If there is one thing, Wall Street really hates, it's slowing growth. International expansion won't help the stock much. We had them over here in Germany for a couple of years and they failed pathetically. They tried to impose on German customers the American Way of Shopping. E.g., there was a guy at the front door of the store, greeting every customer. Would you believe it! This annoying gimmick alone was enough to keep lots of German customers away from a WMT store. Not surprisingly, WMT had to exit Germany two years ago (though not because of the greeters alone, to be sure).

[Long-Short Guy]

Good article on WMT from Reuters www.reuters.com/articl... . Key excerpt:

Much of the conventional wisdom about Wal-Mart Stores Inc.'s negative effects on local communities is off-base, according to a study on the "Wal-Mart effect" by the Federal Reserve Bank of Minneapolis.

Across a number of measures, the giant retailer's impact is probably a net positive, and overall its footprint on a community's well-being appears smaller than most perceive, economist Terry Fitzgerald said in the bank's "fedgazette" magazine.

"In sum, fedgazette finders suggest Wal-Mart has a slightly positive effect on counties where the retailer decides to set up shop. But the effects are small."