US retail giant Wal-Mart appears to be rethinking its pile it high, sell it cheap philosophy in China at least with the billion-dollar purchase of a community supermarket chain.

According to reports, Wal-Mart has outbid French-owned Carrefour, Britain's Tesco and the mainland's own Hualian, for Trust-Mart supermarket chain, based in Taiwan Province.

Covering 108 stores and 30,000 employees across more than 20 provinces, and with annual sales of around 10 billion yuan (US$1.3 billion), the Trust-Mart purchase would more than double Wal-Mart's presence in China.

The move shows a startling commitment to a market in which the company has so far failed to flourish, especially considering its withdrawal from South Korean and German markets due to disappointing sales.

According to the New York Times, Wal-Mart, which currently has 66 stores in China, expects the deal to be closed by the end of the year, but it still requires approval from the Chinese Government.

The company, the largest retailer in the United States, was yesterday tight-lipped about its rumoured expansion.

Jonathan Dong, Wal-Mart China director of public relations, said he could not comment on the issue, but added: "As long as it's good for our business development in China and good for us to better serve customers, we would not rule out any kind of co-operation."

According to Dong, Wal-Mart's only current concrete plans are for 18-20 new stores in China this year, with 10 already opened.

A sign the company was willing to persevere with its China operations came in July when, for the first time anywhere in the world, it agreed to allow staff in China to form a trade union.

Trust-Mart officials refused to comment on the situation, but if the deal goes ahead, the acquisition of a chain of local supermarkets represents a radical new direction for Wal-Mart, which based its US success on bulk selling at knock-down prices from out-of-town warehouse-sized stores.

Reliant on mass purchasing from suppliers, obsessive control of inventories and logistics systems run with military precision, the US model has failed to translate its success into the Chinese market.

Despite a decade-long presence in China, Wal-Mart has yet to become one of the nation's top 10 retailers, with turnover of 6.2 billion yuan (US$785 million) in the first half of this year, compared to Carrefour's 11.9 billion yuan (US$1.5 billion) over the same period.

The Trust-Mart takeover would put Wal-Mart within touching distance of Carrefour, the leading foreign-owned retailer in China, in terms of number of stores the French chain has more than 200 stores nationwide, as well as moving itself closer to the residential communities where Chinese consumers prefer to shop.

Although declining to comment on Wal-Mart's reported takeover, Yang Qingsong, information centre director of the China Chain Store and Franchise Association, previously told China Daily that it was the ability of Carrefour stores around the country to tweak their stock depending on local preferences that had given them the edge over Wal-Mart.

The French store had previously attempted a Wal-Mart style national purchasing and distribution policy, he said, but it had failed because of different regional tastes and the logistical difficulties of moving vast quantities of stock around the country.

According to Wal-Mart's own figures, Chinese shoppers spend an average of US$4 at the store, compared to US customers' average spend of US$20.

Chinese shoppers, however, visit stores more often in search of fresh produce, a trend Wal-Mart hopes to capitalize on with its reported move into community-based stores.

Feng Zhao, the 28-year-old manager of an exhibition company in Shanghai, believed the move made sense for the US company.

"I have never been to Wal-Mart and don't think I would go because it's too far away from my home," he said. "There is a Trust-Mart near my home and I go there all the time for household products, but I still go to the traditional market for fresh fruit and vegetables."

Graphic designer Jiang Qin, 33, another Shanghai resident, suggested the combination of Trust-Mart's convenient location with Wal-Mart's product range could be a winner.

"Trust-Mart has fewer products than other stores, while most products are at the middle or low end of the scale and it's not really cheap either," she said. "If you could get the range of products stocked at Wal-Mart at Trust-Mart stores, I'd definitely shop there."

(Xinhua News Agency October 16, 2006)