Wal-Mart Stores, Inc. (WMT): Tesco Corporation (USA) (TESO) Changes its Strategy to Limit Losses in China

China part of Wal-Mart’s future growth

Another participant in China’s retail universe is Wal-Mart Stores, Inc. (NYSE:WMT). Wal-Mart is the second largest retailer in China, behind Sun Art Retail Group. The company considers China an area of future growth, and estimates show that the nation’s retail sales could reach $5 trillion by 2016 . The growth in sales is expected to come from China’s growing middle class and government policies that encourage domestic consumption.

This year, Wal-Mart Stores, Inc. (NYSE:WMT) expanded its online business in China by purchasing 51% of Yihaodian, an e-commerce business. Results in the second quarter were positive, with sales growing into the double digits and the site considered one of the fastest growing e-commerce businesses in China . Store upgrades to the tune of $80 million are planned for 50 of the company’s 380+ stores located in China. Over the near term, Wal-Mart Stores, Inc. (NYSE:WMT) plans to open 30 new stores in China in the next six months. Long-term plans include the opening of 100 new stores over the next three years .

My foolish conclusion

Tesco selling its Chinese stores to local retailer CRE can help the company limit additional losses and turn a quick profit. Scaling down without completely leaving the Chinese market, which has excellent growth potential and a growing middle class with money to spend, is a smart move. With a lower stake in the new joint venture Tesco should also be able to maintain greater control over its capital spending. Partnering with CRE, a local player with expertise in China’s retail sector, can provide Tesco with invaluable knowledge on how to successfully operate in this challenging market.

The article Tesco Changes its Strategy to Limit Losses in China originally appeared on Fool.com and is written by Eileen Rojas.

Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.