By Wang Fang(王芳)
Corporation, Page 29
Issue No. 536, Sep. 12, 2011
Translated by Li Meng
Original article: [Chinese]
There were some reports without indicating the source circulating in the first week of September that Carrefour would withdraw from China and its stores would be taken over by China Resources Co., Ltd. But the rumours were quickly clarified. Carrefour China's PR department told the EO that the international hypermarket chain will continue to expand its presence in China by opening 20 to 25 new stores per year.
While the truth behind the rumor is that Carrefour has long past its glorious days in China. The myth of being the first foreign retail group to enter China has long gone. Both foreign-funded RT-Mart and domestic retailers such as CR Vangard have ranked higher than Carrefour China in recent years. "Six stores have been closed since last July and high employee turnover has led to increased pressure on cost control," according to a source close to the retail group, "the cost of physical stores and logistics has surged dramatically, which makes it impossible to reach the expected profit target if we continue to follow the previous operating model."
Nowadays, Carrefour hardly enjoys any of the preferential treatment that it used to receive in those early years of entering China's market both in terms of property rental and store opening. It has been reported that Carrefour is making adjustments in its store opening strategy, in which the priority will shift to the second and third-tier cities and the outskirts of first-tier cities and peripheral cities as secondary.
"Four stores in Dalian, Xi'an, Jiaozuo and Foshan respectively were shut down reportedly due to bad location choices, poor management and inaccurate pre-opening assessment of business environment, demographics etc.," according to a source close to the matter. "It's true that Carrefour China's performance has been faltering. A Carrefour store in Xi'an, as an example requires over 200 million yuan of annual sales revenue to ensure break even, while the actual figure lingers around 50 million yuan which certainly indicates a loss." However the PR department of Carrefour China claimed that it's normal to close unprofitable stores among the 180 that it operates in China, and that the closures are just strategic adjustments.
Nowadays it's almost impossible for Carefour to lease a storefront in urban core business circles of major cities as the operating cost would be far beyond its budget. Furthermore, Carrefour has lost its former privilege of favorable policies, since these days its domestic competitors are granted priority in access to real estate. Since 99% of Carrefour's stores in China are rented, while Wal-mart and Tesco have begun to involve in real estate, huge rent increases will be a headache facing Carrefour after the 20-year lease period of the stores signed in 1995 ends in 2015.
Looking for Changes
Carrefour's Chairman and CEO Lars Olofsson announced its semi-annual report on August 31st - the second largest retail group suffered a net loss of 249 million euros in the first quarter and the French media believes that a restructuring of Carrefour China is unavoidable.
In the past year, big retail groups such as Wal-mart and RT-mart are growing rapidly. Domestic retailers Brilliance Group, Dashang Group and CR Vangard, ranked third, fourth and fifth, all exceeded Carrefour China in the 2009 Top 100 retailer rankings.
It also seems that Carrefour China is also undergoing some personnel changes.The current Carrefour China chief executive Eric Legros (Luo Guowei) , who was appointed to China in 2006, was considered an ambitious reformer. The new country chief carried out a series of controversial reforms of management, cost control and procurement etc. However, a source close to him, said that the Frenchmen habitually thinks in French way and never takes "Chinese characteristics" into consideration. So the problem has been that he couldn't always make right decisions about China market. His stubornness and self-righteousness also makes it even harder for him to listen to opinions and suggestions of subordinates.
The latest news is that Eric Legros will be transferred back to the French headquarter as executive director of Carrefour Group and president of Global Merchandise Department. The new appointment was regarded as the recognition of his "achievement in China". Thierry Garnier, the current Executive Director for growth markets of the Carrefour Group will take the place Eric Legros from April of 2012.
The president of a domestic retailer believes that now the best solution for Carrefour would be the expansion of business into second- and third-tier cities, although the profits may less and growth slower. Winning market share in smaller cities and outskirts is now a trend even for domestic businesses.
He also emphasizes that Carrefour has been focusing on marketing and is obviously left behind in utilization of high technology comparing to Wal-mart's increased spending in technical system such as highly-efficient logistics and satellite info centers for cost control. If Carrefour continues to rely more on human labor, it won't even get upper hand over domestic competitors.