Fri, Oct 14, 2011 - Page 10 News List

Politics the root of Wal-Mart’s China troubles: analysts


Wal-Mart is getting another public bludgeoning in China as popular anger over food safety and political infighting make the retail giant a convenient target.

Authorities in the city of Chongqing have arrested two employees, closed down 13 Wal-Mart stores for two weeks and fined the company 2.7 million yuan (US$421,000).

Analysts say the penalties seem excessive for the violation: passing off regular pork as higher-priced organic meat.

They said the outsize reaction is probably linked to a bid for power by the city’s charismatic Communist Party secretary and concern that public anger over food safety problems could boil over.

Wal-Mart said it was cooperating with authorities but declined further comment.

Meanwhile, Wal-Mart said its effort to reverse a two-year sales slump at its US namesake stores is working.

The world’s largest retailer said on Wednesday during a meeting with analysts that revenue at its namesake stores in the US that have been open at least a year rose three months in a row in July, August and last month.

Wal-Mart had promised a quarterly increase by the end of this year, ending nine quarters of declines, and Wednesday’s news indicates it could make good on that vow in the current quarter, which ends Oct. 28.

“We have had very positive momentum in the back half, especially in the US,” said Charles Holley, Wal-Mart’s executive vice president and chief financial officer. “We have more opportunities to grow more sales in the US and around the world. But we will be deliberate.”

Wal-Mart also said it expected its expenses to increase more slowly than its sales for the second year in a row. The last time that happened was 1992, Holley said. Wal-Mart has vowed to reduce expenses even more aggressively over the next five years and put those savings into reducing the prices its customers pay.

Wal-Mart CEO Mike Duke told analysts that high unemployment is the top concern among its US customers and many were still buying store-brand goods instead of national brands or opting for smaller packages to save money.

However, the company has noticed that lower gas prices in recent months helped raise consumer spending toward the end of the month.

Shoppers are still stretched and fragile, only buying what they need. However, that loosening up just a bit was encouraging news after Wal-Mart has seen spending around the paycheck cycle become more pronounced over the past 12 to 18 months.

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