While consumers indulging in the “11.11” and “Black Friday” online shopping carnivals, the traditional retailing entities in the shadows are facing an austere situation to survive. Recently Chinese shareholder of Carrefour packaged equities of Carrefour’s joint ventures in six Chinese cities to sell and the “delicious cake” in the past became a “hot potato” now. Some foreign-funded hypermarkets which entered the Chinese market as the first ones missed the good opportunity of “transformation” in the “closedown wave”, compared with the local supermarkets which managed ways out in the small businesses and fresh food services, said some insiders. However, some experts said the foreign-funded retailing giants will not give up the Chinese market and closing some stores with poor performance will help them reduce burdens and diversify the business formats.

 

Foreign-funded giants stuck in a “loss” mire

Foreign-funded retailing giants which once enjoyed great successes in the Chinese market are retreating in defeat. Recently the equities of joint ventures of Carrefour were undersold by its Chinese shareholder. Liaoning Chengda recently declared it plans to sell all equities it held in Carrefour at RMB420 million, including 35% equities of Shenyang Carrefour, 35% equities of Dalian Carrefour, 25% equities of Changchun Carrefour, 17% equities of Harbin Carrefour, 20% equities of Hangzhou Carrefour, and 20% equities of Ningbo Carrefour. In the first half year, five of the abovesaid six Carrefour joint ventures stuck in the mire of “losses”, with accumulative losses of nearly RMB100 million. Of that only Harbin Carrefour is profitable.

 

Insiders analyze that the abovementioned Carrefour joint ventures with investment from Liaoning Dacheng are in poor operation. And from the aspect of development trend, the supermarkets will further wither under the impact of e-commerce and the profit prospect is uncertain. Liaoning Dacheng’s packaged assignment will optimize the business structure.

 

Before then Marks & Spencer closed all the 10 stores in the Chinese mainland and the “time-honored” British brand’s abandonment of the Chinese market aroused sighs of the industry.

 

Adam Colton, managing director - Greater China at Marks & Spencer Greater China said, “Through a wider and more comprehensive international assessment, we notice that the businesses in Greater China has evolved into two parts: profitable Hong Kong businesses and money-losing retailing business in the Chinese mainland.” The evaluation discovered that the losses are results of many elements, including scattered distribution and insufficient scale of the wholly-owned stores. In addition, the business growth potential in these markets is limited. Therefore Marks & Spencer decided to close all the 10 stores in the Chinese mainland. The online platforms at Tmall and JD are still accessible, but it stated that the company will evaluate whether to continue the online businesses in the Chinese mainland.

 

Not only Carrefour and Marks & Spencer closed down stores in the Chinese mainland because of the poor performance. Parkson, one of the first foreign-funded department store groups entering the Chinese market, has to close down many stores after 20 years of development. In 2012, Parkson Hongqiao Store in Shanghai declared to close down. Since then Parkson closed down stores at the speed of three stores a year on average. The public information shows that from 2012 to the end of last year, Parkson has closed at least 8 stores in the Chinese market and this year it closed 4 more. Another retailing giant Walmart saw the first annual sales decline in the annual financial statement of last year since 1980. In January this year, it declared to close 269 stores across the world, the largest number of closedown in recent years.

Closing down stores to diversify business formats

The foreign-funded giants which suffer from continuous losses extend the lifeline by reducing the number of stores. But in eyes of the insiders, “closing down stores” does not mean death of the hypermarket mode, but enables the restructured hypermarkets to develop more business formats.

In the multi-business layout, the foreign-funded retailing giants have diversified choices. In addition to the hypermarket, Walmart also runs Sam’s Club and Shopping Center, and Sam’s Club has become a source of profits. Since April this year, Sam’s Club has increased the membership fee from RMB150/year to RMB260/year to attract more high-end consumers. Andrew Miles, CEO of Sam’s Club in China said after increasing the membership fee, members’ spending each time on average increased by 8%.

Under the general context of upgraded consumption in China, Walmart bets on China’s high-end consumers and the action of remodeling Sam’s Club has succeeded. Walmart’s financial statement shows that in the fiscal year as of January 30, the company’s operating revenue reached US$482 billion. Sam’s Club in the Chinese market enjoyed the rapidest growth across the globe. It has 1.8 million of Chinese members, with annual growth rate at 10% to 12%. Walmart CEO Doug McMillon said Sam’s Club enjoy greater potential in the Chinese market than in any other areas and Walmart plans to increase the quantity of Sam’s Club in China by two times in three years, increasing the total number to 35.

Recently Kantar Worldpanel points out in China Shopper Report 2016 - Series 2 that it was smaller retailers like convenience stores and emerging retail formats like Carrefour Easy, along with specialty stores like Watsons, that contributed most of the FMCG sales growth in 2015. Compared with Walmart’s Sam’s Club, Carrefour prefers “small business formats”. Easy Carrefour is a mixture of supermarket and convenience store, meeting today’s characteristics of “buy and go”, but providing more choices than that of the general convenience stores. This lightweight operating mode enjoys outstanding advantages in the community economy. Thierry Garnier, president and CEO Carrefour China, pointed out that the hypermarket still enjoy a future and development space, and the convenience stores have development space in the first tier cities. The foreign-funded retailers do not plan to give up the Chinese market. According to Carrefour’s plan, Easy Carrefour will be located in the first tier cities and will open to 35 to 45 stores this year.

Channel sinks while online measures emphasized

Although the retailing entities show sluggish performance, Taiwan-based RT-mart enjoyed a 12% growth in 2015, reported in China Shopper Report 2016. Insiders analyze that RT-mart avoided the first tier cities and chose the market gaps. Its layout in the neighborhood and new districts of the central cities and the third tier and fourth tier cities became an important turning point for its expansion in the Chinese mainland market. In contrast, the third and fourth tier cities feature less competition, lower costs and high potential as long as the population and consumption capacity can support. The sinking of the large retailers has some meaning on the other level. Rural citizens in developed area have growing acceptance to the new retailing formats and the new formats play a decisive role in driving the rural consumption under certain conditions, said Wang Qiang, associate professor at the School of Business, Renmin University of China.

As early as in 2013, RT-mart established the online shopping platform www.feiniu.com to integrate online and offline efforts relying on the concentration advantages of the physical stores. Hong Wankang, business development director of RT-mart, said e-commerce is a must choice of the retailing enterprises. Although the e-commerce did not have much impact to the performance of RT-mart, it is the industrial trend.

This trend has become more noticeable in the “Golden October” for Walmart and JD. Walmart increased its shares in JD to 10.8% on October 4. On October 20, Walmart and JD jointly declared to enter the comprehensive development stage of strategic cooperation and would join the “11.11” online competition. This is the first time for Walmart to take part in the “11.11” shopping carnival. On October 21, Walmart invested US$50 million in new imdada.com to develop the O2O logistics channels. According to Walmart’s financial statement of the third quarter, its total sales amount increased by 4.2% in China. Doug McMillon attributed this growth to the deep strategic cooperation with JD.

At an interview Doug McMillon talked about such a conception: Walmart will develop e-commerce and in future it will be more like a technology company. Carrefour unveiled its brand-new slogan at the beginning of the month: “A trust called Carrefour”. Parkson is seeking transformation and declared in 2015 to strengthen the three strategic pillars, i.e., the retailing format and website optimization, increase of product and service variety and cross-platform customers interaction. In the context that Chinese consumers are getting used to great changes and the growingly hot “closedown wave”, foreign-funded retailing giants started their transformation. Although it is not as easy in the transformation as the local retailers, they take “localized” measures.

Source: Translated from Invest Guangzhou