How Overseas Retailers Grow Big in China

The big foreign chain retailers have different methods for their expansion as well as different development patterns in China.

Recently, the news about Carrefour’s withdrawal from Xi’an was put under heavy scrutiny. This was the first time for Carrefour to shrink its scale in China since it got into this country in 1995.

It was known that Carrefour has been suffering failure since it settled in this city in 2005. At the beginning, Carrefour planned to open 3 supermarkets in Xi’an. On December 6, 2005, the first shopping mall of Carrefour was opened in the Northern Street, Xi’an. However, this shopping mall only lasted one year and went bankrupt at the end of 2006. Two months later, another Carrefour supermarket was opened in Xi’an.

However, on July 28, 2010, the only Carrefour supermarket in Xi’an also shared the same fate with its predecessor.

Supermaket Closed One after Another

In March 2008, the Halley family, which was the largest shareholder of Carrefour, gave up their shares of the company. The consortium consisting of Bernard Arnault, a French billionaire chairing the global largest luxury goods company LVMH Group, and the US-based private funding Colony Capital became the largest shareholder of Carrefour. However, the French retailers failed to have good performance after the change of shareholding structure.

According to the foreign media’s reports, Carrefour is shrinking its global business. Its supermarkets in Malaysia, Thailand and Singapore. It is reported that Carrefour’s business in Malaysia attracts many bidders, including one milk producer from Singapore, a Japanese supermarket and TESCO from Great Britain. It is known that Carrefour has 19 large supermarkets in Malaysia, two supermarkets in Singapore and 39 supermakets and one convenient store in Thailand.

Previously, Carrefour has already quitted the Korean, Japanese and Russian markets. It businesses in Italy and Belgium also suffered great shrinking.

Before the end of this June, Carrefour closed 21 supermarkets in Belgium and transferred the ownership and operation to Mestdagh, the fourth largest chain retailer in Belgium. 1,672 employees were laid off. Carrefour got into the market of Belgium in 2000. The total investment in this country reached 900 million euros. It also acquired GB chain supermarket, which was the laregst retailing company in Belgium. However, most of Carrefour’s stores in Belgium saw losses in these ten years. The market share in this country decreased from 30% in 2000 to 25% in 2009.

Chen Bo, spokesman for Carrefour China, said this January that Carrefour entered into Japan in 2000 but failed to have good performance. In 2005, Carrefour’s business in Japan was acquired by the Japenese retailing company Ieon Group.

On January 15, Carrefour published its financial report of the fourth quarter 2009, which showed the sales in that quarter was 26 billion euros, with a 1% increase. In addition, the revenue in 2009 was 96 billion euros, with the year-on-year decrease of 1.4%. It is reported that Carrefour’s shrinking or yielding their business in some coutries is serving for the plan of entering into the Indian market.

In truth, this is not the first time that Carrefour met recession in China. sereval months ago, a Carrefour supermarket in Dalian was also closed. Carrefour gave out a high-sounding excuse the store was not closed but removed to another location. However, the source said that the store always suffered loss from opening.

“Influenced by the decreased market demand, management problem and intensive competition, the required daily revenue of a single Carrefour store has dropped to 300 thousand yuan (USD 44.28 thousand), say, the yearly revenue of a single store is 100 million yuan (USD 14.8 million),” said the source. The Carrefour supermarket in Xi’an only had the daily revenue of 120 thousand yuan (USD 17.7 thousand). Another store in Jiaozuo, Henan only saw the daily revenue of 50 thousand yuan (USD 7.4 thousand). Such a low income could not meet the demand of normal operation.

Shrinking or Expansion

When China’s economy began to get rid of the influence of financial crisis and approached stability, the foreign retailing giants accelerated their paces of taking the Chinese retailing market. The new round of competition in China’s retailing market has begun. Carrefour, which had been the champion in the number of stores in China for several years, has to retreat to the second place. It is known that Wal-Mart has already opened 160 stores in China while Carrefour only has 145 stores. It is the first time that Wal-Mart exceeded Carrefour in the number of stores. According to Chen Bo, Carrefour only had eight new stores in China opened in the first half of 2010.

Previously, Carrefour CEO Lars Olofsson said that the company will quit the market in which the ranking od Carrefour’s sale is not in top 3 and the company would accelerate its expansion in China and India.

The experts says that Wal-Mart’s expansion will put Carrefour into a predicament in China.

According to the public data, Carrefour decreased the expected business target in 2009 for twice due to the dissatisfactory performance in 2009. It was once said that Carrefour would quit China and sell its business to Wal-Mart. However, Carrefour denied this saying.

When Carrefour quitted the Xi’an market, it was planning to increase the number of stores in Hebei. Chen Peng, who is in charge of Carrefour’s development in North China, disclosed a big expansion plan in a forum. “We expect that a dozen of new Carrefour stores will be opened in Hebei at the end of this year.” It is known that Carrefour is negotiating with Hebei Canglong Business Ratailing Co., Ltd about the acquisition. Once it is done, Carrefour will control this Hebei-based company. It will be the first acquisition of Carrefour in China.

Meawhile, another retaling giant Wal-Mart also accelerated its development pace in China. “In 2009, Wal-Mart had 55 new stores opened in China, exceeding the total number of newly-opened stores of all its competitors. Wal-Mart is bullish on China’s market and plans to go further and further in China,” said Lu Zhipin, senior executive of Wal-Mart (China) Investment Co., Ltd.

TESCO, which is a strong opponent for Carrefour and Wal-Mart in China, also had 17 supermarkets, 3 shopping malls and 3 convenient stores opened in China in 2009. Its annual growth in China is 30%, higher than Carrefour’s.

According to the finanical reports, Carrefour’s net profit decreased from 1.27 billion euros to 327 million euros in 2009, with the 74% year-on-year decrease. Among the wails in the world Carrefour’s business in China was the only joy. In the fourth quarter the sale increased by 3.1% and the whole year’s sale increased by 1.8%.

Acquisition Is a Way of

Expansion

China Federation of Commerce and China Commercial Information Center liased the top 100 retailing companies in China in 2009. Taiwan-based RT-Market, which was ranked at the sixth position, saw the sales of 40.4 billion yuan (USD 5.96 billion) in 2009, larger than the No. 7 Carrefour with the sales of 33.6 billion yuan (USD 4.96 billion). Wal-Mart was ranked at No. 9 in this list with the sales of 24 billion yuan (USD 3.54 billion).

Compared with the global retailing market with slow growth, China’s retailing marekt is quite prosperous. Afer the financial cirsis, the foreign retailing giants prepared for furious competition in this country.

In the retailing industry, a good location means a good business. Therefore, acquiring the existing shopping center with good location is a “shortcut” for the foreign retailer’s expansion in China.

In July 2004, the laregst retailer in Great Britain TESCO spent 140 million pounds in acquiring 50% shares of Legou supermarket chains. From then on, the foreign retailers changed the previous pattern of building a store by themselves or cooperating with a local partner. They turned their focus to the acquisition of Chinese retailing companies. Then, in February 2007, Wal-Mart bought 35% shares of Buy More Group with 264 million US dollars. Korea-based Lotte Group spent 635 million US dollars acquiring Jiangsu-based Times Retailing Company with which it entered into the Jiangsu market. Hong Kong-based Vanguard acquired Sugo Supermarket in Jiangsu, Fimily & World Supermarket in Tianjin, Aijia Supermarket in Xi’an and so on. Nearly half of its 2700 stores in China came from the acquisitions.

Prof. Zhou Liqun from Nankai University says that the foreign retailers’ core strategy of development has turned to the second- and third-tier cities in China because of the increasing cost of logistics and human resources and intensive compeition.

It is known that TESCO has been planning on intensive market expansion since its entry into China in 2004. In recent years TESCO accelerated its pace of getting into the second- and third-tier cities. Now, TESCO is working on an agreement with Shanghai Zhonghong Group on opening new stores in Tongxiang city, Jiangsu province in the next three years.

Previously, TESCO declared a plan of investing 500 million yuan (USD 73.8 million) in buying a piece of land in Fushun, Liaoning to build a shopping center. It plans to open four new shopping centers at the end of this year.

Wal-Mart’s development plan is to expand its business all over China. The developed cities and the developing cities with great potential will be the destinations of Wal-Mart, which targets at serving the customers with increasing family income and consumption per capita.

Apart from these major retailers, some special retailers also launches intensive market activities in China. The largest fashionable products retailer in Great Britain Arcadia plans to enter into China in 2011. TESCO has determined to open more than 17 new stores in China in 2010 to expand its retailing arm. Mitsui Fudosan Group Ltd from Japan plans to invest 4.5 billion yuan (USD 664.2 million) in developing tis first property development project in China. Meanwhile, this company also plans to have 80 new shopping centers opened in 2016, whose total area will reach 40 million square feet.

Presently, TESCO has expanded its distribution arm to Beijing, Liaoning, Shandong, Xiamen, Nanjing and Guangdong. The number of commerical projects with contracts has reached 20 and four of them will be opened in this year and next year. Zhuang Nanbin, vice president of TESCO China says that the investment of each project is between 400 million and 500 million yuan (USD 59.04 million and 73.8 million).

It is obvious that these foreign retailing giants have begun to seek more profit spaces in the major cities in China while expanding into the small and middle cities.