Wal-Mart seeks overseas success by going native in China

ANNE D’INNOCENZIO, AP Business Writers
PAUL WISEMAN, AP Business Writers

SHENZHEN, China (AP) — Zhong Guoyan sifted through piles of fish at a Wal-Mart in Shenzhen, one of China’s largest cities. She studied the fins, to make sure they were bright red and firm. She peered at the eyeballs — were they bulging?

“When I come here, I have a look,” she said. “If it’s good, then I will buy it. If it’s only cheap, I won’t buy it.”

In American Wal-Marts, customers don’t get to fondle their fish. But America is not China, as the world’s biggest retailer has learned. If the Arkansas-based company wants to win over foreign consumers, it has to shed some of its American ways, and cater to very different customs and conventions that are fast changing.

Zhong eventually tossed a couple of fish into a plastic bag — a small victory in Wal-Mart’s struggle to build an international empire.

The stakes are high: The company can’t count on much growth in the U.S. — it’s facing challenges at home with intense competition from Amazon.com and dollar stores — so the retailer is depending more on its operations overseas.

China is the ultimate prize. The Chinese grocery market, already the world’s largest at $1.1 trillion a year, is expected to grow to $1.5 trillion in sales in just the next four years, says IGD, a global consumer products research firm.

“China remains a strategic market for our future,” Doug McMillon, CEO of Wal-Mart Stores Inc. recently told investors.

Getting the food business right is critical for Wal-Mart. Shoppers buy groceries more often than anything else. If Wal-Mart can get them in the door to buy food regularly, perhaps they will visit more frequently for items like pajamas and coffee makers — and eventually become loyal online customers, too.

The company has taken some lumps trying to cross borders in food retailing. Overall international sales growth dropped 9.4 percent last year largely because of the strong dollar. And while Wal-Mart’s overseas business had a strong start to this year, it faces long-term challenges. Wal-Mart gave up in Germany and South Korea in 2006. It’s closing stores in Brazil.

Overseas, Wal-Mart lacks the scale to squeeze local suppliers on price as it does in the U.S. It also faces nimble competitors. And it has struggled to duplicate its bedrock strategy of constant bargains.

But Wal-Mart has learned over the years from its missteps, discovering that it needs to adapt to local ways and that patience pays off.

In Mexico, Canada and Japan, it’s won shoppers over time. In Chile, it launched a corporate culture campaign and worked closely with suppliers to coax them into its way of doing business.

“Wal-Mart,” says Bryan Roberts of the London retail consultancy TCC Global, “is a very determined organization.”

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WINNING OVER PICKY CONSUMERS

In the unruly Chinese market, some competitors cut corners, mislabeling products or even selling tainted foods. The risks have made Chinese consumers unusually wary.

Sean Clarke, CEO of Wal-Mart China, based in Shenzhen, previously worked in Britain, Japan, Germany, and Canada. China, he says, “is easily the most challenging market to operate … There is a huge level of distrust.”

Wal-Mart had a difficult time promoting “everyday low prices” — promising the lowest prices on a basket of goods every time consumers shop.

Some rivals poached the “everyday low price” message, confusing customers. Wal-Mart scrambled to find the right slogan. In 2012, it introduced “Worry Free” — implying quality and reassuring shoppers who worry that deals will expire before they get to the store.

The company’s message: Efficiency and good management, not cutting corners, make everyday low prices possible.

The message has sometimes been muddled. When Wal-Mart came to China, it was slow to tailor its offerings to local tastes. Realizing its mistake, Wal-Mart gave local managers more leeway to run their businesses.

But that approach backfired, leading to a series of food-safety violations. In one particularly embarrassing episode, Wal-Mart had to recall donkey meat — a delicacy in China — after DNA testing showed it contained traces of fox meat.

In response, Wal-Mart slashed nearly two-thirds of its 20,000 suppliers. Now, Wal-Mart knows exactly where each product comes from. Wal-Mart also took back some of the responsibilities from local managers and increased its investment in food safety. It introduced mobile testing labs that check for pesticides on vegetables and fruit and employed handheld devices to check temperatures of meat products.

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GAINING CONTROL OVER SUPPLIERS, COSTS

In America, Wal-Mart has the clout — 25 percent of the U.S. grocery business— to force suppliers to do things the Wal-Mart way. That means cutting costs to the bone. In return, the suppliers enjoy steady demand from Wal-Mart, so they don’t have to spend so much on advertising or worry about paying extra costs to staff their factories to meet unexpected peaks in demand.

In China, things are tougher. Wal-Mart accounts for just 2.3 percent of the grocery market. Ninety-five percent of all products Wal-Mart sells in China are supplied by local companies.

The Chinese supply chain is also notoriously inefficient. For years, Wal-Mart and other foreign companies didn’t deal directly with their suppliers, working mostly instead through a labyrinth of middlemen.

Three years ago, Wal-Mart decided to cut out the middlemen and route as many goods as possible through 20 of its own distribution centers.

By eliminating the go-betweens, Wal-Mart could negotiate directly with suppliers and knock down costs — often by 10 percent or more.

The change also gives Wal-Mart more control over the quality of the food being sent to its stores and the efficiency with which it gets to them. Before the switch, only about 75 percent of orders would actually reach Wal-Mart stores; now 95 percent do.

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FIGHTING COMPETITORS

Wal-Mart landed in China in 1996, a year behind Carrefour, opening two stores in Shenzhen— a Wal-Mart supercenter and a Sam’s Club. They were the first foreign retailers to offer the big-box shopping experience, which offers everything from clothing to food. After investing in a Taiwanese-owned retail chain in 2007, Wal-Mart became China’s biggest super-sized store chain and expanded its lead for the next two years.

But local and regional competitors quickly closed the gap, sometimes undercutting Wal-Mart prices because they have closer ties to local suppliers and can negotiate better deals.

Wal-Mart insists its market share for the big-store sector has increased over the past three years. But Euromonitor says Wal-Mart’s market share has fallen to 9.6 percent (No. 3 in the market) after peaking at 11.6 percent in 2009.

Wal-Mart last year announced plans to add 115 stores in China by 2017, bringing the store count to 530. It’s concentrating in markets where it’s already established, including its stronghold in the south. And it has given up on about 30 lackluster stores.

Meanwhile, Wal-Mart faces another challenge in China, and it is not from other big box stores.

Across the globe, shoppers are increasingly buying online or at small stores. But in China, that trend is more dramatic. It has already overtaken the U.S. as the world’s biggest online marketplace.

German factory orders down by 2.0 percent in April

 

BERLIN (AP) — Factory orders in Germany have dropped sharply in April adding to worries about stagnation in the German industry.

The Federal Statistical Office said Monday that new orders in manufacturing decreased by 2.0 percent in April compared to the previous month. It also adjusted March’s rise to an increase of 2.6 percent over February, compared to the 1.9 percent rise initially reported.

April’s decrease was caused by a 4.3 percent drop in foreign orders, primarily from outside the eurozone, while domestic orders increased by 1.3 percent. Orders from outside the euro area decreased by 8.3 percent compared to the previous month.

ING-DiBa economist Carsten Brzeski said the figures “add to evidence of continued stagnation in the German industry.”

India’s Modi: cooperation with Swiss on tax-evasion fight

 

GENEVA (AP) — Indian Prime Minister Narendra Modi says his country and Switzerland have a “shared priority” in fighting tax evasion and the practice of squirreling away “black money” in Swiss banks.

Modi spoke Monday to reporters alongside Switzerland’s president in a brief stop in Geneva as part of a five-country trip. Modi’s next stop is Washington.

The Indian leader pointed to “the need for an early and expeditious exchange of information to bring to justice the tax offenders.”

President Johann Schneider-Ammann said Switzerland will dispatch a state secretary for international financial matters to India on June 14 to explore tighter cooperation on the matter.

Schneider-Ammann said he and Modi did not discuss any figures about the number of Indian tax evaders or the total value of their assets involving Switzerland.

Global shares mixed as Fed rate hike seen as less likely

YURI KAGEYAMA, AP Business Writer

TOKYO (AP) — Global shares were mixed Monday after a U.S. report showing slowing hiring was seen as making a Federal Reserve interest rate hike less likely.

KEEPING SCORE: France’s CAC 40 was up 0.3 percent at 4,432.89 in early trading, while Germany’s DAX gained 0.4 percent to 10,144.12. Britain’s FTSE 100 gained 0.8 percent to 6,259.91. U.S. shares were set to drift higher, with Dow futures up 0.2 percent at 17,835 and S&P 500 futures also up 0.2 percent at 2,101.10.

ASIA’S DAY: Japan’s benchmark Nikkei 225 fell nearly 0.4 percent to finish at 16,580.03. Hong Kong’s Hang Seng added 0.4 percent to 21,036.24, and the Shanghai Composite edged down 0.2 percent to 2,934.10. Trading was closed in South Korea for a holiday.

U.S. FACTOR: Downbeat jobs data released Friday appeared to convince traders that the Federal Reserve will keep interest rates low longer than previously expected. It also stirred concerns that the U.S. economy is slowing. The Labor Department reported that the economy added 38,000 jobs in May, the fewest in five years.

THE QUOTE: The U.S. employment figure “not only derails a potential summer Fed hike, but also increases the odds of the Fed remaining on hold through 2016, let alone two rate hikes. Employment has been the backbone of the U.S. economy over the last year, and the employment report has been a lifeboat for the Fed when other fundamental indicators turn unsupportive. Where to from here?” said Stephen Innes, senior trader at OANDA Asia Pacific.

ENERGY: Benchmark U.S. crude oil rose 56 cents to $49.18 a barrel in New York. Brent crude, which is used to price international oils, gained 56 cents to $50.20 a barrel in London.

CURRENCIES: The dollar traded at 107.18 yen, down from 108.92 yen late last week in Asia. The euro stood at $1.1357, up from $1.1155.

7 automakers add 4.4M vehicles to Takata recall

 

DETROIT (AP) — Seven automakers are adding nearly 4.4 million vehicles in the U.S. to the massive Takata air bag inflator recall.

Documents detailing recalls by General Motors, Volkswagen, Ford, Daimler Vans, BMW, Jaguar-Land Rover and Mercedes Benz were posted Thursday by the government. Recalls from eight other companies were posted last Friday.

They’re part of a mammoth expansion of Takata air bag recalls announced last month. Seventeen automakers are adding 35 million-to-40 million inflators to what already was the largest auto recall in U.S. history.

Thursday’s recalls include passenger air bags, mainly in older models in states with high temperatures or humidity.

Takata inflators can malfunction and spew shrapnel into drivers and passengers when exposed to humidity and repeated hot-and-cold cycles.

The recalls are being phased in during the next two years.

SpaceX chief Elon Musk predicts people on Mars in 9 years

 

RANCHOS PALOS VERDES, Calif. (AP) — SpaceX CEO Elon Musk says if things go according to plan people will be on Mars just nine years from now.

During an interview Wednesday at the Code Conference in southern California, Musk said that “we should be able to launch people in 2024, with arrival in 2025.”

Musk also says he plans to go to space himself in about four to five years, but only into orbit around Earth.

Musk also runs Tesla Motors, which has been at the forefront of self-driving car technology. He says he sees Apple as more of a competitor than Google in the autonomous vehicle market, but suggests they may be too late to compete with Tesla.

He believes Apple will go into volume production of the cars no sooner than 2020.

Federal regulators propose restrictions on payday lenders

KEN SWEET, AP Business Writer

NEW YORK (AP) — Federal regulators are proposing a significant clampdown on payday lenders and other providers of high-interest loans, saying borrowers need to be protected from practices that wind up turning into “debt traps” for many.

The Consumer Financial Protection Bureau’s proposed regulations, announced Thursday, seek to tackle two common complaints about the payday lending industry.

The CFPB is proposing that lenders must conduct what’s known as a “full-payment test.” Because most payday loans are required to be paid in full when they come due, usually two weeks after the money is borrowed, the CFPB wants lenders to prove that borrowers are able to repay that money without having to renew the loan repeatedly.

Secondly, the CFPB would require that lenders give additional warnings before they attempt to debit a borrower’s bank account, and also restrict the number of times they can attempt to debit the account. The aim is to lower the frequency of overdraft fees that are common with people who take out payday loans.

“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” CFPB Director Richard Cordray said in a prepared statement.

Cordray compared the situation to getting into a taxi for a crosstown ride and finding oneself stuck on a “ruinously expensive” trip across the country. He said the proposal would aim to “prevent lenders from succeeding by setting up borrowers to fail.”

Payday lenders would have to give borrowers at least three days’ notice before debiting their account. Also, if the payday lender attempts to collect the money for the loan twice unsuccessfully, the lender will have to get written authorization from the borrower to attempt to debit their account again.

In a study published last year, the CFPB found that payday borrowers were charged on average $185 in overdraft fees and bank penalties caused by payday lenders attempting to debit the borrower’s account.

The CFPB is also proposing that auto titles no longer be used as collateral, which would effectively end the auto-title lending industry.

A separate study found that one out of every five borrowers of auto title loans were having their cars seized after failing to repay the loan, which often had a secondary negative effect of taking away the means for the borrower to get to his or her job.

The CFPB found that annual percentage rates on payday loans can typically be 390 percent or even higher, while rates on auto title loans are about 300 percent.

The proposed regulations are likely to face stiff opposition from lobbyists from the payday lending industry and auto-title lending industry, as well as opposition from members of Congress.

“The CFPB’s proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” said Dennis Shaul, CEO of the Community Financial Services Association of America, which is a trade group for the payday lending industry.

According to the trade group, the new rules would eliminate 84 percent of the industry’s loan volume and would likely result in payday lender storefronts closing.

Consumer advocates had mixed reactions to the bureau’s proposal, some saying the proposed restrictions do not go far enough. Nick Bourke, director of the small-dollar loans project at the Pew Charitable Trusts, said that the rule to document a borrower’s ability to pay is good, but it does not address the high interest rates these products often charge.

The agency is seeking comments from interested parties and the general public on the proposals before final regulations are issued. Comments are due by Sept. 14.

OPEC ponders ways to show its oil clout at Vienna meeting

GEORGE JAHN, Associated Press

VIENNA (AP) — With higher crude prices bringing some relief, OPEC officials meeting Thursday focused on trying to find common ground on how much to produce in an attempt to re-impose the image of the organization as a major player in determining supplies and prices.

For decades, the 13-nation cartel was able to regulate prices by throttling or increasing production. But with some members not sticking to the limits and outside players increasing their market share, recent meetings have failed to re-impose unity.

Saudi oil minister Khalid A. Al Falih suggested that the Organization of the Petroleum Exporting Countries nonetheless remained a strong market force. “We will come up with a consensus,” he told reporters ahead of the meeting in Vienna. “OPEC has always managed to come up with a consensus.”

In fact, though, attempts to impose production ceilings have foundered over recent years, with countries ignoring them and producing as much they wanted or could.

The final statement at the last meeting, in December, didn’t even mention an output target, signaling the cartel’s eroding ability to influence supply, demand — and prices.

One way out would be abandoning attempts to set a firm production target. Ministers at Thursday’s meeting could instead agree on a sliding ceiling that could shift between two benchmarks, both above 30 million barrels a day. That would be a first.

“The group is under a lot of pressure to reassert itself as a viable entity,” said Jason Schenker of Prestige Economic. “To achieve that, they are likely to achieve a production target of sorts.”

A flexible ceiling also could address Iranian resistance to curbing its output. Since the lifting of nuclear-related sanctions this year, Iranian production has roared back to nearly four million barrels a day, around the same level as before the imposition of the sanctions.

Reflecting its stance, Iran did not even show up at a meeting in April between OPEC members and outside producers attempting to agree on a joint output freeze to push prices higher. The Saudis then said they would not cap output if Iran didn’t do the same, dooming the gathering to failure.

Suggesting the organization’s credibility was on the line in Vienna after that abortive meeting, Schenker declared: “This is a make or break moment for OPEC.”

The ministerial gathering comes amid a recovery in the price of oil. Since touching a 13-year low early this year, it has rallied almost 90 percent to around $50 a barrel. On Thursday, the international benchmark, Brent, was up 22 cents on the day at $49.93.

While that’s still only half of what crude fetched as late as two years ago, the increase is easing some of the pain for poorer members such as Algeria, Venezuela and Nigeria that depend on crude as their main income. And there are promises of further increases.

U.S. shale production is in decline as it needs higher prices to be economical. At the same time, the world economy is showing signs of some improvement, meaning that the appetite for petroleum may increase.

Ironically, part of the credit for OPEC’s improving fortunes is due to its inability to act in unity in recent years. Instead, many individual members produced what they could, driving down prices to the point where shale producers are increasingly unable to compete. Some have gone out of business, reducing the glut of global supply.

At the height of its power decades ago, OPEC essentially was able to set world prices and supplies. Although it is still responsible for more than a third of world production, that clout has eroded since the 1980s, as outside output increased and members looking to maximize income increasingly ignored OPEC production ceilings.

But it took top OPEC producer Saudi Arabia to turn overproduction into market strategy.

Since deciding in 2014 to squeeze out outside competition by flooding the market to drive down prices, it has pumped close to or above 10 million barrels a day — close to a third of the organization’s total production. That, plus resurgent output from Iraq and post-sanctions Iran, helped push down prices, with the desired effect of making shale production increasingly uneconomical.

New Greek austerity measures tap cafe culture

DEREK GATOPOULOS, Associated Press

ATHENS, Greece (AP) — Greeks have woken up to a new wave of price hikes that have been demanded in return for more international bailout loans, with the highest increases targeting the main ingredients of the country’s cafe culture: Coffee and beer.

Starting Wednesday, Greece’s main sales tax rate, or value added tax, went up from 23 to 24 percent. Taxes were also raised on services used heavily by Greeks forced to cut back on leisure activities due to the financial crisis. Charges increased on internet, fixed telephone and pay TV subscriptions.

The measures were approved by parliament before Greece’s partners in the 19-country eurozone agreed to unfreeze 10.3 billion euros ($11.5 billion) in bailout funds and begin discussions on easing Athens’ debt repayments.

Greece’s left-wing government also overhauled pensions and signed up to ambitious budget targets.

Business owners have criticized the latest tax hike, saying it will hit consumption when the country is already reeling from six years of a financial crisis that has seen the economy shrink by a quarter and unemployment swell — the jobless rate is currently around 24 percent.

“The sixth VAT increase in six years and the second in the last 10 months means that our lives from June 1 get more expensive by 437 million euros per year, while each increase acts as a cut to consumption, turnover and state income,” said Vasilis Korkidis, head of the Hellenic Confederation of Commerce and Entrepreneurship.

Coffee shop owner Katerina Vagena noted that this was the second hike in consumer tax on coffee in the space of a year. Last year, it was raised a whopping 10 percentage points to 23 percent as part of the country’s third international bailout deal.

“The price was already quite high. It’s a country where many people are having difficulty paying 3-3.5 euros. So it’s become a problem and people have stopped coming for coffee,” said Vagena, whose coffee shop in Athens employs five people.

“All we do is pay taxes. They think they get more out of small businesses. But so many businesses were opened by people who were unemployed,” she said. “I think a lot of us will go. And we’ll join the ranks of the unemployed.”

The tax changes will also increase fuel prices.

“The consequences will be negative for the consumer and for us because (people) will surely reduce the amount of gas they use and this will produce a chain reaction,” said gas station owner Antonis Stellas.

World economy risks getting caught in ‘low-growth trap’

 

PARIS (AP) — The world economy risks getting caught in a “low-growth trap” if governments don’t spend more on investments, open up to trade, and make reforms, a top economic forum warned Wednesday.

The Organisation for Economic Co-operation and Development said in a wide-ranging report that it is increasingly pessimistic about the global outlook and cut its growth forecasts.

Among the risks identified by the Paris-based economic agency, which represents the world’s most developed economies, was a potential British exit from the European Union, volatility in financial markets, and Europe’s inability to find a common response to its refugee flows.

Above all, the OECD said in its Global Economic Outlook that weak growth risks becoming chronic.

“This low growth trap involves a cycle in which diminished expectations become self-fulfilling,” said Angel Gurria, the OECD’s secretary-general.

According to the OECD, firms are too cautious to invest, are holding back innovation and productivity. As a result, households are getting more pessimistic about jobs and the future. The ensuing weaker consumer spending then feeds back into pessimism among companies, creating a vicious cycle.

Though the U.S. economy has improved in recent years, the next biggest economy, China, is slowing. Because it’s a major consumer of raw materials and energy, as well as being a huge exporter and increasingly important consumer, concerns have grown over the state of the world economy.

Elsewhere, the European economic recovery has failed to gain much traction while Japan remains sluggish. And emerging markets are struggling to deal with volatile currencies, high debt and the crash in prices for goods they export — Brazil and Russia, for example, are in deep recessions.

The OECD said countries have relied too much on central banks to stimulate demand and should instead look to strengthen public investment and make their economies more competitive through structural reforms.

It is forecasting global growth of 3 percent this year and 3.3 percent next. Both are down 0.3 percentage point from its last set of forecasts in November.

The OECD reiterated its view that a vote for a British exit from the EU later this month “would depress growth in Europe and elsewhere substantially.”

It estimated that in the case of an EU exit, Britain’s economy could be 5 percent smaller by 2030 than if the country remained in the bloc.