Standing quietly in a large residential area west of Pudong, Wal-Mart Stores Inc's first store in the city is expected to stir up the local retail market.

The 18,000-square-metre hypermarket, which the company calls a "supercentre," is set to open on Thursday, the first of three stores Wal-Mart plans to open in Shanghai.

Even before it has opened, the new store has local retailers, especially those in the vicinity, worried.

Within two kilometres of the Wal-Mart, there are Thailand-based Lotus supercentre, local Hualian GMS, NGS Supermarket, and a number of convenience stores.

Hualian GMS Supermarket, located on the same road and only 1.5 kilometres away, is revamping its shelving, layout and merchandise structure.

Company spokesman Qiu Yi said since his store is only 2,000 to 3,000 square metres wide it will focus on fresh and raw food, favourite among local customers, and remove lines that are not very popular.

Another neighbour, Lotus Supercentre, is also concerned.

"There's no doubt that Wal-Mart's Pudong store will affect our business because we are so close. But we will learn from it and compete," its spokeswoman Xiang Jun said.

Since it opened its first store in Shenzhen - now its headquarters - in 1996, the Bentonville, Arkansas-based retailer has launched 27 stores in China and employs 20,000 staff.

It owns eight hypermarkets in Shenzhen and two in Beijing. Its 2005 goal is to open 12 to 15 new stores, including two in Beijing in the second half of this year.

Company spokesman Liu Jun said the Pudong store will stick to the company's low-price strategy, characterized by local sourcing.

Wal-Mart now has two distribution centres in China, one in Dongguan and one in Tianjin. Liu said the company plans to build another one in Shanghai, but the timing has not been decided yet.

Wal-Mart will face stiff competition from two major competitors in the Shanghai market, the Brilliance Group and French retailer Carrefour S. A. The two dominate the city's current 100-strong large supermarkets.

The Brilliance Group, China's largest retail conglomerate, which owns Hualian Supermarket, Hualian GMS supermarket, the Lianhua chain as well as a host of others, has a large share of the local retail market.

Carrefour has opened eight hypermarkets in Shanghai and 54 in other cities, and it vows to open 15 new ones every year.

In the top 100 retailers' list, published by the China Chain Store and Franchise Association last year, Carrefour ranked number one, with 16.2 billion yuan (US$1.96 billion) in sales, while Wal-Mart lagged behind in 20th position with sales of 7.6 billion yuan (US$919 million).

Wang Liang, deputy director of the Shanghai Current Economics Research Institute, believes the coming of Wal-Mart will speed up competition, and will in the long run force businesses to restructure.

Currently, China's local retailers only manage to make profits of 1.2 per cent on average, while Wal-Mart's profit margin stands at 3.5 per cent.

Wang said Wal-Mart's presence will force local retailers to reflect upon their management and services.

"Shanghai's local retailers are only imitating foreign competitors. They have not touched the soul of competitive foreign retailing," he said.

And the "soul" is advanced management and sourcing.

Wang also expected Wal-Mart's new store to stimulate the area's supply chain, and the service sector as a whole.

Last year, Wal-Mart purchased US$18 billion worth of merchandise from the local market, China's sixth largest export market if it were a country.

(China Daily July 26, 2005)