China growth paradox baffles Walmart China has been an unqualified success for Walmart in one sense: Chinese factories are the backbone of its low-cost global supply chain. Yet in another sense, the world's biggest retailer by sales has met its match in the world's biggest country by population. Unlike its clinical mastery of the manufacturing process, Walmart has found that the other end of its China operations - selling to consumers - is much harder. Despite dozens of store openings every year, its share of China's supermarket sales has slipped to about 5.5 per cent, according to estimates by the China Market Research Group. Its reputation took a bruising in October when police detained several store managers over allegations that they had mislabelled ordinary pork as organic and four senior China managers have left in the past year. Last week, Walmart appointed Greg Foran as China chief executive. Though he has never worked in China, Mr Foran has spent 30 years in the retail industry and is seen as someone who can bring a steady hand to its operations. But focusing on leadership alone obscures Walmart's far bigger challenge, and one not of its own making: the China growth paradox. Retail sales are booming in China, doubling every five years or so. The result is unbridled competition, making it one of the world's toughest markets. Walmart, Tesco, Carrefour and Metro headline the foreign entrants. Japanese and Korean retailers are also pressing hard. Taiwanese and Hong Kong companies have been among the most successful. Then there are scores of homegrown competitors. China is a battlefield. You literally have almost everybody," says Torsten Stocker, head of the Asia consumer goods practice at consulting firm Monitor Group. So what is an ambitious retailer to do? For starters, they must build scale. This is a cornerstone for successful hypermarket retailing - becoming big enough to manage their own supply chains. Here, China presents a dilemma. The country is simply too large for retailers to develop a nationwide presence quickly. So they must choose between targeting key cities around the country and penetrating specific regions. If the former, they risk spreading themselves too thin. If the latter, they risk ceding valuable turf to competitors. Walmart already has more than 350 stores in 140 cities. Carrefour has about 200 outlets. Yet both are far from reaching saturation point anywhere and they are still tiny compared to their respective homes of the US and France, where they each have about 4,500 stores. "None of these retailers are playing with any scale yet," says Philip Smiley, Asia Pacific CEO of consultants Kantar Retail. Giving their Chinese stores a more local flavour is another must. But it also presents retailers another dilemma in the choice between the standardisation that comes with top-down control and the flexibility of bottom-up management. Walmart's strategy in recent years had been partly to move away from its headquarters-driven heritage to give more sway to store bosses. Last year's pork mislabelling scandal may nudge them back towards more centralisation. That would be a mistake. It is little coincidence that RT-Mart, the best-performing foreign big-box retailer in China, is also one of the most local. It is owned by Sun Art, a joint venture of Taiwan's Ruentex Group and Groupe Auchan of France, and it listed in Hong Kong last year. RT-Mart's per-store sales are nearly double those of its main foreign competitors, according to Kantar Retail. On a weekday evening at its flagship store in Beijing, RT-Mart's blend of Walmart-style efficiency and Chinese touches was on display. The vegetable section resembled that of any modern supermarket but for the burly female employee who stood in the aisle barking out bargains. The feel was more akin to the street markets the locals know so well than to the sterility of big-box stores. Walmart is of course known in the west for selling things cheaply. In China, however, there are plenty of cheaper options, from street vendors to small stores packed with knock-offs. Unveiling the appointment of its new China head, Walmart Asia CEO Scott Price said the retailer wanted "to help Chinese customers save money so that they can live better." Saving money is not a problem for Chinese customers. When they go to a big-name store like Walmart, their focus is more on the "living better" part of Mr Price's quote. RT-Mart seems to understand that. In its alcohol section, it offers Chivas Regal - the drink of choice for young, party-loving, upwardly mobile Chinese - in 4.5 litre bottles.