Monday, March 20, 2006

Good News, Bad News?

WMT (Wal-Mart Stores Inc.)

“Wal-Mart Stores Plans to Hire Up to 150,000 Employees in China over Next Five Years”. This news advanced the price of WMT up $1.07 to $47.76 today.

Is it a really good news as the market reacted?

I asked a friend: “If you got rich by selling bikini at Bahamas, could you get rich by selling bikini at North Pole?”—I wonder the upper management of Wal-Mart made their ambitions in a wrong place.

As we all know, Wal-Mart sells cheaper products and its customers are middle class and belong. Majority of its products is imported from China.

If Wal-Mart sells products of well known brands, then I would think they had a good decision. Today, the middle and up class of Chinese really enjoy the high quality, new fashions and famous brands. The market for it is huge.

The Wal-Mart’s business model is buy at cheap and sell at cheaper(at relatively good quality). It probably can be success anywhere, but China.

Unless Wal-Mart wants to change their way to do business, Because of the high productivity in China, because of the different shopping habits, because of the different culture, I just cannot figure out how Wal-Mart could compete with the local competitors at even cheaper market.

I have no doubt Wal-Mart can survive there, but I wonder how much profit it can make there, and how can it get big return from its investment.

I do not think Wal-Mart’s plan is good news to its investors. The bigger the plan is, the worse it will get.

My suggestion to the holders of WMT: Reduce your holding within a year.



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