The US giant, which is the world’s largest retailer, said this week that efficiencies at China’s increasingly sophisticated manufacturers would help counter costs created by soaring inflation and the appreciating yuan. It also said that China would be one of its key suppliers, even if some manufacturing took place elsewhere.
Wal-Mart head of international operations Mike Duke said: “Their use of technology to produce quality product in a more efficient and responsible way is taking place.” Wal-Mart will source about US$9 billion (£4.57 billion) of goods from China this year.
Planet Retail global research director Bryan Roberts said that large retailers such as Wal-Mart generate cost savings by centralising their manufacturing operations in key zones in China. “In areas such as clothing and toys, as Wal-Mart scales up its orders, that leads to increasing economies of scale,” he said.
His comments came as Goldman Sachs forecast that Chinese inflation will rise from 4.5 to 6.8 per cent this year.
Above all, Roberts said that rising inflation was the biggest cost facing retailers that source from China. “Inflation is more of a concern at the moment – particularly regarding retailers’ costs for distribution, rent and wages.”
He added that large retailers such as Wal-Mart typically hedge against fluctuations in global currencies. He said: “Regardless of currency fluctuations, China will continue to be one of the cheapest sources for goods.”
He added that there is a plethora of suppliers that could “step up to the plate” if retailers moved away from their existing supplier base.