RETAIL: Carrefour Overhauls China Business
Bottom line: Carrefour’s new China strategy ends a period of uncertainty about its commitment to the market, though its move into e-commerce is long overdue and could fail due to its lateness.
After sending a stream of mixed signals over the last 2 years about its commitment to China, global retailing giant Carrefour (Paris: CA) has finally decided it will stay in the market for now, but only after overhauling its operations. The decision will see the company do a major consolidation of its procurement centers, and also push into convenience stores and e-commerce. The signals seem to imply that the days of rapid expansion for its core chain of superstores is probably finished, with e-commerce and smaller stores likely to form the bulk of its China expansion going forward.
This particular shift is long overdue, and follows an extended period of uncertainty dating back to 2013. At one point Carrefour had reportedly hired an investment bank to explore the sale of part of its China operations, in what could have been a prelude to a complete withdrawal from the market. European rival Tesco (London: TSCO) took such an approach in 2013, and has now essentially withdrawn from China. (previous post)
Carrefour’s biggest global rival, US giant Wal-mart (NYSE: WMT) has also struggled in China with its large-store format. Wal-mart is continually closing underperforming stores across the country, though it is still adding stores on a net basis and has never indicated it may consider leaving the market. In addition to its brick-and-mortar stores, Wal-mart has also invested heavily in e-commerce by purchasing local player Yihaodian.
Carrefour has made no such e-commerce moves due to its indecision, costing it valuable time in China as it considers its next move. A big part of its indecision is related to its broader situation, which has seen it shed some of its offshore units to focus on its struggling core business in Europe. China was a market with big potential for the company, but also one that was quickly changing with the rapid rise of e-commerce giants like Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).
According to the latest reports, Carrefour will launch its major overhaul next month, starting with a consolidation of its national procurement network from the current 24 centers to just 6. (Chinese article) That move will result in large layoffs, though the company wasn’t more specific on that matter. Carrefour will also designate a chief operating officer for its China operations to strengthen its management.
The company currently has 238 stores in more than 70 Chinese cities, employing more than 60,000 workers. It wants to expand that number to 100 cities, and aims to achieve that goal in part by expanding its new brand of Carrefour Easy convenience stores. It has piloted the concept in Shanghai over the last year, and now plans to expand the stores that are larger than typical conveniences store but smaller than a traditional supermarkets.
Last but not least, the company is also belatedly making a push into e-commerce, long after most of China’s other major retailers have made a similar moves. As part of that effort, the company is in the process of setting up 6 logistics centers around the country to handle product fulfillment, and should be fully online by next year.
My initial reaction is that this plan looks quite comprehensive, and should end all the speculation about Carrefour’s long-term commitment to China. The e-commerce element is certainly a necessary move, but may be too little too late. The convenience store concept also looks intriguing, and could offer an interesting alternative with more product offerings to the smaller convenience stores that are quite common in big cities like Shanghai but still relatively rare in many of China’s smaller cities.
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