Wal-Mart still buys heavily into the China story, despite slowing growth in the world’s second-largest economy, the retail giant’s Asia CEO and president Scott Price told CNBC on Tuesday.
Speaking at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Manila, Price said he expected China to drive more than half of the retail sector’s growth over the next decade.
Despite concerns about sub-7 percent economic expansion in China as it transitions from a manufacturing-led economy to a services-based one, Chinese consumers’ appetite for retail appears healthy.
October’s retail sales figures were up 11 percent on-year, while September’s number saw a 10.9 percent jump from 2014.
November 11’s record-breaking Singles’ Day – the world’s largest sales event – provided possibly the biggest affirmation of China’s retail demand.
E-commerce behemoth Alibaba posted record-breaking numbers, handling $14.3 billion in sales over the 24-hour shopping period, a 60 percent increase from 2014.
Haoyu Shen, CEO of JD Mall, which is owned by Alibaba’s fierce rivalJD.com, told CNBC that China’s number two e-commerce company also saw “very strong numbers across different categories.”
Wal-Mart tapped into this shopping phenomenon through its Shanghai-based e-commerce business, Yihaodian, which Price said had “a great Singles’ Day.” He did not give sales numbers.
Wal-Mart acquired full ownership of Yihaodian this year to move into China’s thriving e-commerce space. Price said the move was also motivated by the “gamut of opportunities” in the so-called online-to-offline (O2O) space, in which a customer can place an order online and pick it up in-store.
“We think online-to-offline is critical,” he said, as “customers look for convenience, and convenience is not just one mode.”
A recent HSBC report noted that China was late to the O2O market, with the segment’s pace only picking up in 2014 with “a surge of start-ups in restaurants, local services and transportation.”
In its nascent stage, the market is not yet profitable as players are subsidizing O2O services in order to capture market share, HSBC said, adding that “profits should emerge as the market mature.” The likes of Alibaba, Baidu, and Tencent are already operating in this space.
The Chinese O2O market is close to 10 trillion yuan ($156.8 billion) in size, with internet penetration being just at 4 percent, HSBC said.
The online portion of O2O revenues surged 80 percent on-year to 300 billion yuan ($47 billion) in the first half of 2015, according to HSBC. The report added that as China’s retail sector became less fragmented and consumers increased the frequency of their purchase, O2O would bring even greater opportunities in the future.
In recent years, bricks-and-mortar stores have faced stiff competition the world over from online retailers.
But Wal-Mart’s Price said demand for O2O services could provide a boost for the owners of bricks-and-mortar stores as online rivals increasingly recognized that having a physical presence was useful.
Earlier this month, U.S. e-commerce giant Amazon opened its first physical bookstore, Amazon Books, where it sells books as well as Kindle, Echo and Fire Tablet electronic devices.
In China, urbanization and an emerging middle class in China’s tiered cities would provide “a lot of opportunities” for Wal-Mart to expand on its O2O strategies, Price said.
“We think the convenience of having online-to-offline and the role that online can play is pretty important, especially as you start to serve those tier 3 and 4 cities,” he added.
Last month, markets got a rare glimpse into Wal-Mart’s China performance, which the U.S. company does not break out in its earnings reports. Reuters reported that a local joint venture partner had submitted filings to a Chinese asset exchange platform as part of a planned sale of minority stakes in 21 Wal-Mart stores in the country. The filings revealed that the combined revenue at those 21 stores, which employ some 30,000 staff, fell 6 percent to 26.6 billion yuan ($4.2 billion).