BEIJING (Reuters) - Wal-Mart (WMT.N) stores in the central Chinese city of Chongqing were cited for violations 20 times over five years before the latest incident that led to the closure of all the chain’s stores in the city, a Chongqing official said on Wednesday.
That information came two days after the head of Walmart China and another senior executive resigned for what were described as personal reasons, compounding the problems of the world’s biggest retailer in the world’s second-largest economy.
The citations, dating back to July 2006, were for food and other products that did not meet standards or were past their expiry dates, and unspecified false advertising, according to a document from the Chongqing bureau of the State Administration for Industry and Commerce.
Most recently, Chongqing authorities accused Walmart of selling regular pork labeled as organic meat. Chongqing ordered all 13 Walmart stores in the city to close for two weeks, and fined the world’s biggest retailer 2.69 million yuan ($423,088).
“Wal-Mart always avoided responding and never gave explanations as to why they were selling fake organic pork for such a long time and on such a large scale,” Zhao Jia, a spokesman for the Chongqing bureau of the State Administration for Industry and Commerce, said by telephone.
“Because they incurred violations so many times, we issued such a severe penalty.”
Chongqing officials have arrested two employees in the case and are detaining at least 25 others, Zhao said. Previous news reports had said that 35 others had been detained.
Wal-Mart is using the time to correct problems, Walmart Asia spokesman Anthony Rose said.
“We’ve listened to the feedback we’ve gotten, and are taking all the necessary actions in our stores,” Rose said on Wednesday. “We want our actions to speak. When we reopen the Chongqing stores customers will be happy with what they see.”
Rose, speaking from Wuhan in central China, would not comment on the history of citations. He said Walmart would release information later about measures taken at the stores, which the company plans to reopen next Tuesday.
The departures on Monday of China CEO Ed Chan and Senior Vice President of Human Resources Clara Wong are new setbacks for Wal-Mart, which faces stiff competition from local firms.
Both resignations were for personal reasons and had “no correlation” with the investigations in Chongqing, Rose said earlier.
It was the second round of top-management resignations at Walmart China in less than five months. In May, the company’s chief financial officer and chief operating officer resigned.
Analysts say it is not clear if any of the executive’s departures were related to Wal-Mart’s difficulties in Chongqing.
Walmart’ first citation in the city came in July 2006, when the retailer was found to be selling soup paste that fell short of food standards, according to the document provided by Zhao.
Stores in Chongqing were later found to be selling orange juice, pressed duck, dairy products and other items past their expiry dates, according to the bureau.
Walmart was also cited in cases where products, ranging from lemon candy to televisions and washing machines, had not met production standards, as well as unspecified false advertising.
Major Western firms have faced closer scrutiny from state media and criticism over issues including food safety and garment quality. Some executives complain privately that their companies are subject to stricter enforcement than local firms.
Under flamboyant Communist Party boss Bo Xilai, Chongqing has earned a reputation as being tough on crime. Courts have sentenced dozens of people to death or long jail terms in the past year as part of the crackdown on organized crime in the city of more than 30 million.
Wal-Mart, which has 353 stores in China, recently celebrated its 15th anniversary in the country. Its expansion gathered steam in 2007 when it bought a 35 percent stake in Taiwanese hypermarket chain Trust-Mart.
The retailer’s market share in hypermarkets was 11.2 percent in 2010, in second place after China’s Sun Art (6808.HK), but spending for the expansion has weighed on its profitability.
China’s hypermarket sector is forecast to grow at a compounded annual rate of 10.1 percent between 2010 and 2015, according to Euromonitor. But price competition is particularly tough in that segment.
Editing by Don Durfee and Ron Popeski