Carrefour Not to Leave China

The worlds second largest retailer had a recession in China. But it is exaggerating that it will completely withdraw from the Chinese market.

After being surpassed by Wal-Mart and Taiwan-based RT-Mart in both number of storefronts and the average sales amount of each store in China, France-based Carrefour was reported to quit the emerging markets like China and Brazil. On October 8, the Economists published an article saying that this French giant planned to sell its businesses in Asia and Latin America and completely withdraw from the Chinese market. This news surprised many people, because China is always a highlight of Carrefours international businesses.

Carrefour did suffer great losses because of the financial crisis. On October 28, 2009, Carrefour published its financial report for the first half of this year, which changed from last years 744-million-euro profits to this years 583-million-euro losses. Ignoring some non-operating factors, Carrefour saw a net loss of 58.10 million euros in the first half of 2009. Though the amount of loss is huge, Carrefour still saw great increases in its businesses in Asia and Latin America. Therefore, this news is quite surprising for many people, who all thought that the top management of Carrefour must be insane to make up such a ridiculous and absurd decision.

But the news was not out of nothing. The US News and World Report and the French Le Figaro had made relevant reports. The Economists was the latest media reporting this matter. It was said in its article that a group of shareholders who controlled 13% of Carrefours shares got 20% of the voting rights. The financial crisis pushed them into trouble, so they wanted to sell their shares. When they bought these shares, the price was 50 euros per share. Now the price fell to 30 euros per share. Selling the businesses of Carrefour in Asia and Latin America will bring Carrefour with 13 billion euros and bring the shareholders with the dividends of 10 euros per share. In that situation, it is quite possible for Carrefour to sell its businesses in Asia and Latin America. It was also mentioned in the article that Wal-Mart is likely to acquire these businesses with high prices.

But Carrefours sayings about this matter is totally opposite to the article mentioned above. Carrefour didnt plan to quit the Asian and Latin American markets; instead, it planned to add the investments into these two places. According to the declaration of Carrefour, it has no plan to sell the operating branches in the emerging markets and hopes that the French media publishing the false report can remove the relevant articles. Carrefour said in the declaration that it is not accustomed to giving opinions about the rumors in the society, but the false news was spread more and more widely. Therefore it had to publish this declaration.

The French media mentioned in Carrefours declaration was more or less referred to Le Figaro, which firstly reported the rumors and then refuted it. It said that the development strategy of Carrefour has been approved by its directorate board. From the long-term view, the company focuses on the developing countries, especially China and Brazil. Another French newspaper said that the global CEO of Carrefour Lars Olofsson sent emails to the heads of the branches in China, Brazil, Turkey and Columbia, clearing the rumor about selling the businesses. In September, Olofsson came to China and saw the huge amount of people and the long queue waiting for check-out in the Carrefour supermarkets in Nanjing and Shanghai. Then he said that he will open 20 to 22 new stores in China every year.

Therefore, it was quite a nonsense that Carrefour planned to quit the Chinese market. Actually, Carrefour said clearly in the declaration that the companys primary markets are the ones in France, Italy, Germany and Great Britain. But the long-term development strategy focuses on the emerging markets represented by China and Brazil. After the issuance of the declaration, Carrefours stock price increased by 0.5%.

The spokesman for Carrefour China Chen Bo also denied Carrefours withdrawal from China. “Carrefour is always bullish on the potential of the Chinese market,” said he.

Last year, Carrefour saw the shrink in the European market because of the financial crisis. China became another base for the French retail giant in expansion. But its leading place in China was challenged by Wal-Mart and RT-Mart also from last year.

According to the statistical data, last year, the average sales amount of a single store for Carrefour in China was 252 million yuan (USD 36.91 million). For the first time it was surpassed by RT-Mart whose sales amount of a single store reached 333 million yuan (USD 48.8 million). In the first quarter of 2009, RT-Marts total sales amount in China was 700 million yuan (USD 102.5 million) more than Carrefours. Meanwhile, Carrefour was also surpassed by Wal-Mart in the number of storefronts in China, which was 139 versus 158. By the end of this September, Carrefour had only opened 7 new stores in China in this year.

With the unwillingness to be surpassed by the competitors, Carrefour began to try optimizing the supply channels and lay more emphasis on the cooperation with the suppliers. It launched the “plan of supporting the financing of small- and medium-sized enterprises” so that it can provide credit guarantee services for the small- and medium-sized suppliers and release the tense supplier-buyer contradictions which serve for winning the suppliers trust and better development opportunity in the Chinese market.

Chen Bo said that Carrefour will maintain its development pace in China. The plan of opening 20 to 25 stores each year in China will not be changed.

It is known that Carrefour has already met several setbacks in the Asian market. Due to the dissatisfactory performance, Carrefour subsequently quitted the Japanese and Korean markets in 2005 and 2006, selling its businesses there to the local enterprises. Recently, Carrefour met a failure in Russia, forcing it to withdraw from the largest country in the world.

Different from Japan, Korea and Russia, China is always a promising land for Carrefour. It entered China in 1995 and underwent smooth development in 14 years.

According to Olofsson, Carrefour planned to open 70 new stores in China from 2009 to 2010. At the end of this September, only one tenth of them were opened to the public. Carrefour will have to accelerate its pace in the rest time to fulfill the goal.

Apart from the continuation of opening new stores in China, Carrefour also started the reconstruction in the existing storefronts in China, which mainly served for saving energy. The total investment reached hundreds of million yuan. In addition, Carrefour began to improve the localized purchasing from this year, meaning that the Carrefours storefronts could buy more things from where they are located. Beijing, Shanghai and Chongqing were chosen as the pilot cities. Carrefour built the rural cooperatives there to produce the fresh products like vegetables by itself. This is helpful to reduce the purchasing cost.

Putting so much energy in development and fighting against the setbacks, how could Carrefour quit the Chinese market?