Why Walmart Struggled in China—and How It Adapted

This article is part of a series on cross‑cultural design. Earlier installments were published earlier this month; stay tuned for the rest of the series in February 2017.

Walmart’s expansion into China began in 1996 with a superstore in Shenzhen. While the retailer is known for its dominant presence in the United States, its initial foray into the Chinese market encountered significant obstacles that delayed its success for many years.

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Walmart’s early strategy mirrored the approach of many Western firms: open large‑format stores and apply proven American merchandising algorithms. However, this model proved ill‑suited to China’s distinct consumer behavior and regulatory environment.

One of the first major setbacks involved a political misstep. In Chongqing, a sale of a product that was prohibited by local and national authorities led to a temporary shutdown of the entire city’s operations. The incident underscored the importance of aligning closely with Chinese regulations and local governance.

In 2013, labor activists began voicing concerns about working conditions and wages at Walmart China. The company paid an average of $300 USD per month—well below local expectations—and refused modest wage increases. While Walmart could afford to double salaries—an estimated $30 million USD per month for 100,000 employees—this was not pursued, leaving both employees and the government in a difficult position.

Misreading the Market

Beyond regulatory challenges, Walmart misinterpreted Chinese consumer preferences. The U.S. inventory algorithm failed to predict demand accurately, resulting in frequent stockouts and excess inventory. Additionally, China’s less developed road network outside major cities caused shipping delays and higher logistics costs.

These operational gaps left substantial revenue on the table. The retailer’s struggles culminated in the closure of 29 stores in 2013 and a strategic slowdown announced in 2015.

Recognizing the need for a new approach, Walmart China forged a partnership with JD.com in June 2016. JD.com, the largest e‑commerce platform in China, provided critical market insight, distribution networks, and a platform for digital integration—leveraging the concept of guanxi to strengthen local ties.

Walmart’s experience in China illustrates that success requires more than simply opening stores. Navigating regulatory frameworks, addressing labor concerns, understanding consumer behavior, and building local relationships are essential for sustainable growth.

The author is Clayton “CJ” Jacobs, an Entrepreneur‑in‑Residence and Head of Cross‑Cultural Design at ReadWrite. He specializes in helping U.S. companies enter the Chinese market with user‑centric product design. Contact him at clayton.michael.jacobs(at)gmail.com or connect on Twitter & LinkedIn.