Carrefour is often mentioned as a success story of foreign retail enterprices entering the Chinese market but as the chinese market has developed the future of Carrefour might be more gloomy than most would expect.
Since july last year Carrefor have closed 6 shops, and the chain had a 249 million euros loss in first quarter of 2011.
Big domestic and foreign chains are growing dramatically.
If carrefour’s business now is in trouble then the future might bring down even more pain to the giant.
When carrefour entered the Chinese market in the late 90’ties the Chinese market was immature, consumerisme was just starting, and Chinese authorities and governments was more than happy when carrefour wanted to put one or more shop in their cities. They was so happy that they gave Carrefour huge discounts on renting shop space, often in very attractive locations, where the prices since then have soared.
Most of the leases was signed for 20 years, hense within a foreseable future many of them are up for renewal, and Unless the renewals will fall in middle of a Crises or recession it seems unlikely that carrefour with get any discouts this time, governments and contracters will have $ signs in their eyes.
Take for example the Carrefour in yang jia ping in Chongqing, not unlikely one of the best spots for a big supermarket, in the middle of a shopping area, rignt down the stairs from walk streets; even with several competitors popping up in recent years, the branch is almost always overly crowded.
One can easily imagine some Chinese retailers dreaming big dreams of taking over the location.
Many other retailers have learned from this and instead of renting they simply buy the locations for their shops, though if Carrefour after 20 years in china is to follow that path buying shop space wont be cheap.
Besides problem with renewal of leases carrefour also faces increasing competition from both foreign and domestic retailers like young hui, among other places, located in the basement of the semi fancy paradise walk mall in yang jia ping. If carrefour is crowded Young hui is often more, especially in the food sections. There are many similarities between young hui and carrefours interiour and build up of the store, but somehow Young Hui seems more Chinese, more like a traditional Chinese market in a modern shape.
And similar stores is popping up everywhere in Chongqing, Carrefour will less and less seems like the “special supermarket’” but one among many others.
Carrefours focus on a full home product line, with TV’s and refrigiators etc when you enter the store can also be discussed. Even the yang jia ping branch is crowded, it aint with TV and refrigiator buyers, most Chinese will probably go to more specialized retailers for that, which might also explains why Young hui dont sell these items. The young hui branch is smaller than carrefours, but they have a higher percentage of their products which is grocery related.
Carrefours meassures the last years to change their business seems diminuish, coupon codes which gives a 6 rmb rebate for each 66 rmb bought, or increased foreign product line, besides that, the Chongqing shops looks like they did 10 years ago.
If carrefour should keep its earlier strong position there seem no doubt they need to evolve and get up to speed, resting on past glory wont help them much in the Chinese present day.