(Bloomberg) -- Walmart Inc. is flying so high on the strength of its Chinese operations that it’s exited a long-time local partnership, an outlier in a consumer landscape that’s increasingly hostile to foreign brands.
As other Western consumer giants exit China or lose market share to local rivals, the US retailer remains its biggest hypermarket operator. That’s thanks in large part to Sam’s Club, which in the country is a members-only chain offering premium goods. The franchise is continuing to drive double-digit sales growth, Walmart executives said on an earnings call this month, and half of all China sales are digital.
The booming demand for Sam’s Club made it possible for Walmart to build its own e-commerce app, a rarity in China, where major western retailers mostly rely on local platforms like Alibaba Group Holding Ltd.’s Taobao and Tmall. The number of e-commerce orders being delivered within one hour rose 28% in the last quarter, to 59 million, the company said. And the Sam’s Club’s membership model has been so successful it’s being copied by some competitors.
“Customers are responding favorably to the increased convenience as we scale pickup and delivery capabilities,” Chief Finance Officer John David Rainey said on the call.
Walmart stands out not just in the supermarket space but across China, where both foreign and local businesses are facing a pullback in demand as the economy slows. The company was the only one of China’s five largest hypermarkets whose sales grew last year. France’s Carrefour SA shut more than 140 mainland stores in 2023, leaving just four remaining, while the UK’s Tesco PLC has exited the market entirely.
It’s also bucking the trend of previously-successful western brands now struggling in China. Starbucks Corp. is exploring a strategic partnership of its own as local rivals surge, and Nike Inc., beset by rising consumer nationalism, has softened its China outlook.
Eight years ago, Walmart needed tech giant JD.com Inc.’s e-commerce infrastructure. Now, while it still depends on JD.com’s courier services, it’s established its own logistics infrastructure, including its app and expanded warehouse network.
“Walmart and JD may still work together, but Walmart has been actively building up its e-commerce infrastructure, making itself rely less on JD,” said Jason Yu, managing director of Kantar Worldpanel Greater China, which tracks consumer spending.
Walmart sold its entire stake in JD.com this week, raising some $3.6 billion and reflecting confidence in the fact that it can now bet solely on itself in China. Walmart is looking across its portfolio and deciding where to invest, including in its own technologies and capabilities, according to a person familiar with the matter. The retailer will continue to focus its business in China, the person said, one of its international growth markets alongside India and Mexico.
Sam’s Club has been a bright spot, but Walmart will need to grapple with signs of struggle for its China hypermarket business similar to those of rival chains. While the company doesn’t regularly disclose outlet numbers, data from the China Chain Store & Franchise Association show it closed roughly 75 stores between 2019 and the end of 2023, leaving it with about 365 in the mainland. Sam’s Club locations more than doubled in the same period, to the current 48.
Walmart did not immediately respond to requests for comment on Thursday.
The break is another blow to Chinese tech giants, as an economic slowdown and consumers’ pullback weighs on earnings. Shares of JD.com, which has been battling rivals like Alibaba and Temu owner PDD Holdings Inc., fell in Hong Kong after the sale was reported.
“The e-commerce landscape has changed significantly since Walmart first formed a relationship with JD.com,” said Mark Tanner, managing director at marketing agency China Skinny. Post-sale, “Walmart will be able to double down its focus and capital on Sam’s Club, which is its sweet spot in the market and offers the most potential upside.”
--With assistance from Jaewon Kang.
(Updates with store closures in 10th paragraph.)
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