Sam’s Club and Hema’s ‘Misaligned’ Competition in the Chinese Retail Market

On August 15, Walmart released its financial report for the second fiscal quarter of FY2025: Walmart’s total revenue for Q2 reached $169.335 billion, a 4.8% year-over-year increase, with adjusted operating income rising by $720 million to $790 million. In China, Walmart’s net sales for the second fiscal quarter reached $4.6 billion, a 17.7% year-over-year increase, marking the second consecutive year of growth acceleration. In early July, Walmart’s International CEO, Catherine McLay, visited China and met with Wang Shouwen, Vice Minister of the Ministry of Commerce and the International Trade Negotiator. During their discussion, they covered US-China trade relations as well as Walmart’s development in China. McLay stated that Walmart will continue to expand its business in China, actively develop omnichannel retail, and provide high-quality products and services to Chinese consumers.Despite closing at least 17 Walmart Supercenters in China by 2024, Sam’s Clubs and e-commerce operations remain strong, continuing to drive Walmart China’s sales growth. In June, Walmart’s CFO, John Rainey, participated in the Evercore ISI Consumer and Retail Conference, saying, “We are very satisfied with the performance of Sam’s Clubs in China. We continue to see excellent growth there. Some of our top-performing stores in terms of overall revenue are in China, specifically Sam’s Clubs in China.”

By the end of 2024, China is expected to have over 50 Sam’s Club locations, with 6 new stores confirmed in Dongguan, Shaoxing, Chengdu, Quanzhou, Wenzhou, and Wuhan, demonstrating Sam’s Club’s continued expansion from tier-one cities into lower-tier markets. Additionally, more Sam’s Clubs are being built in remote areas of tier-one cities and are expected to open over the next three years.Sam’s Club’s success has attracted local competitors. On October 1, 2020, Hema launched its first Hema X Membership Store in Shanghai, and its X membership store in Beijing’s Yizhuang even hired the store manager from Sam’s Club’s top-performing Yizhuang location. However, the X Membership Store did not generate the expected results. Hema only achieved overall profitability in the fourth quarter of 2022, which continued for two consecutive quarters. But since Q2 2023, with the company preparing for an IPO and implementing discount reform, Hema has fallen back into the red.The good news is that after Yan Xiaolei took over as CEO of Hema, the company achieved profitability for four consecutive months during the off-peak period between March and June 2024. This signals that her strategic adjustments and cost control efforts are beginning to show results, potentially leading to long-term, stable profit growth. Yan set an ambitious three-year goal: to reach an annual GMV of ¥100 billion, a 69% increase from 2023. She is also optimistic about Hema’s IPO: “By then, Hema will be one of China’s top retailers, and going public will be a natural step.”

In April this year, Hema officially restored and upgraded its Gold and Diamond X Membership services, retaining the original membership benefits while adding new perks such as birthday vouchers and cashback, and expanding the service range to more cities. This move aims to both strengthen loyalty among existing members and attract new ones. However, Yan Xiaolei only announced that Hema Fresh and Hema NB (Hema’s discount store brand, with “NB” standing for “Neighbor Business”) would be the company’s dual engines of growth. On one hand, Hema plans to accelerate the expansion of Hema Fresh stores, particularly in lower-tier markets, with plans to open 70 new stores within the year, nearly double the number of openings in the previous year. However, there was little mention of further expansion for the X Membership Stores. Hema has suspended plans to open new membership stores and has already closed two, one of which was the Hema X store located in Beijing’s Wanda Plaza on Dawang Road, which used to be a Walmart Supercenter.In July 2023, an anonymous source cited an internal meeting where Walmart China’s Chairman and CEO, Zhu Xiaojing, stated that Sam’s Club is currently “far ahead of competitors” in the Chinese membership-based hypermarket market, with Hema being the only possible competitor. With Hema adjusting its strategic focus, Sam’s Club no longer needs to view Hema as its only potential competitor. Zhu Xiaojing will likely look back with a smile at his prediction from a year ago in 2024.