Ｆｏｒｅｉｇｎ Ｓｕｐｅｒｍａｒｋｅｔｓ Ｓｅｅｋ Ｓｈｅｌｔｅｒ ｉｎ Ｃｈｉｎａ

The financial crisis gave the foreign retailers a lot of stress because the consumption markets in the developed countries have been depressed for long. Those retail giants wisely choose the second- and third-tier cities in China as its new targeted areas of development.

The net profit decreased by 7.4% in the fourth quarter”. “The yearly net profit fell by 45%”. The financial reports of Wal-Mart and Carrefour show their bad situations in the markets of their homes.

In comparison, Chinas second- and third-tier cities never stop welcoming the new supermarkets of these two retail giants from the beginning of this year.

When there is no space for further development in the European and American markets, those foreign retail giants have chosen Chinas second- and third-tier cities as their new areas for development because of the low cost of development and the broad market.

China as the Shelter

In the middle of February, the worldwide largest retailer Wal-Mart published its report of fourth fiscal quarter which ended on January 31, 2009, saying that the net profit of this company fell by 7.4%. The main cause is the cost of wage litigation conciliation and bad performance in the international business and Sam Clubs reserve chain business.

On March 12, the second largest retailer Carrefour published its financial report of 2008 fiscal year, showing that the net profit in 2008 fiscal year fell by 45.5% to 1.27 billion euros. Carrefour attributed the fall to a series of promoting sale through lowering prices. Previously, Carrefour lowered the objects of sale and profit twice in 2008 fiscal year and appointed Lars Olofsson to be the CEO, taking the place of Jose Luis Duran.

The third largest retailer TESCO also has no good news. The UK-based consultation institution TNS World Panel recently released a group of data, showing that TESCOs market share in the UK fell to 30.2%, which is the lowest in several years.

Under the influence of the financial crisis, the European and American retail markets have reached the saturation point or even have taken on a decline trend. However, the three retail giants mentioned above all have good performance in China. The revenue of TESCO in China has seen two-digit growth rate for several straight months; Patrick Ganaye, vice president of Carrefour China, said that the Carrefours business performance in Asia and Latin America drove the whole business in 2008. According to his prediction, Carrefours sales amount in China will grow by 15% in 2009; Shawn P. Gray, Vice President of Wal-Mart China said that his companys yearly sales amount in China grew at least by 25%. In addition, the Germany-based retailer METRO also saw a 2% growth rate in Germany and an 8.5% growth rate in the international market. There is an optimistic development outlook in the Asian market.

Second- and Third-tier Cities as the Core

Dong Yuguo, Director of Public Affairs Department of Wal-Mart China once said: “Each crisis means an opportunity.” During the period of financial crisis, the foreign retail giants, which have been suffering the depressed consumption market in the developed countries, all consider the second- and third-tier cities in China as their major areas for development. The low cost and the huge market demand, nothing can be more attractive.

At the beginning of this year, Carrefours top management said that 28 new supermarkets would be opened in 2009, while in 2008 the number was 22.

Wal-Mart is unwilling to fall behind. In January 2009 it opened 17 new supermarkets in China, which was nearly the same as the number of new supermarkets opened in 2008 (20). Most of these 17 new supermarkets were opened in the second- and third-tier cities in China. For example, three new supermarkets were opened in Dongguan, Guangdong. And people can see Wal-Mart supermarkets in Yancheng, Jiangsu, Xiangfan, Hubei and Loudi and Changde, Hunan. Such an action of Wal-Mart was considered to realize the goal of “catching up with Carrefour in China”.

The foreign retail giants seem to be confident in competing for the market share in Chinas second- and third-tier cities. It is known that Wal-Mart began its development in Chinas second- and third-tier cities early in 2006, from the cities and counties in Guangdong, Fujian, Zhejiang and Jiangsu to the cities of Hunan, Hubei, Henan, Anhui and so on.

Favorable Conditions as Attractions

“A few years ago, Wal-Mart accumulated business experiences and relationships. The financial crisis pushed Wal-Mart to make further development in Chinas second- and third-tier cities,” said a senior manager of a foreign-funded supermarket in China. According to him, the land price for foreign-funded supermarkets is cheaper by about 146.7 thousand yuan (USD 21 thousand) per acre than the normal price. If building a ten-acre supermarket, about 1.47 million yuan (USD 210 thousand) can be saved. “Now many local governments of different cities in China give out more favorable conditions. If the global leading companies like Wal-Mart invest in Chinas second- and third-tier cities, they will enjoy those favorable conditions.”

“Wal-Mart and Carrefours movements are all paid a lot of attention, from choosing sites to negotiation to last agreement,” said a government official from a coastal third-tier city in China. This official is responsible for attracting investments. According to him, the foreign retail giants which open new supermarkets in his city can enjoy more favorable condition in taxation and land price than half a year ago.

If Wal-Mart and Carrefour open new supermarkets in the second- and third-tier cities of China, more large-sized real estate developers are also attracted. In addition, those retail giants can push the development of local purchasing industry. “In current situation, it is much easier to attract the investments from the world leading enterprises than in the period when the economic situation is good,” said the above-mentioned government official.

The development of business scale needs a large cash flow as the backing. According to the estimation of Citibank, the amount of cash balance Wal-Mart has will reach 100 billion US dollars in 2010. This enabled Wal-Mart to have enough strength and power to make acquisitions when the competitors are in trouble.