Carrefour Seeks Cash From China Ops
The retail world is buzzing with the latest reports that global giant Carrefour (Paris: CARR) is considering a potential withdrawal from China, as it tries to figure out how to make money in a market with huge potential but also massive competition. A Carrefour source in China was quick to deny the possibility of a sale, but clearly big discussions are happening behind the scenes on what’s likely to be some major changes for the world’s second largest retailer. One of the company’s biggest handicaps is its failure to recognize the rapid rise of e-commerce in China, which has put it at a disadvantage over other traditional retailers like Walmart (NYSE: WMT) and Suning (Shenzhen: 002024).
The flurry of buzz began with a report in the Wall Street Journal, saying that Carrefour was considering a sale of its China and Taiwan assets as one of several options for that part of its business. (English article; Chinese article) Other options for the business included an IPO to raise up to $1 billion in Hong Kong, or the sale of part of the business to an outside partner.
Based on those reports, the message appears to be that Carrefour needs money and is looking to raise some through either a complete or partial sale of its China assets, or a listing for them. If that’s the case, then it does appear that Carrefour isn’t necessarily looking to exit China completely but instead wants to get some cash out of its Chinese operations that are probably worth several billion dollars.
A Carrefour source in China was later quoted by the China Daily as saying the Wall Street Journal report was “fake”, though that same source declined to comment on the listing plan. Earlier this month, Carrefour’s China CEO said at an event in Chengdu that China’s current economic slowdown is posing some “difficulties for retailers.” But Theirry Garnier was quick to add that Carrefour would continue to expand in the market.
Carrefour’s difficulty in the market comes as no surprise, as both foreign and domestic retailers have been facing recent headwinds in China due to the country’s sudden economic slowdown. Earlier this year reports emerged that Walmart was closing several of its China stores as part of an adjustment, and Germany’s Metro Group (Frankfurt: MEO) also announced it was shuttering its Media Markt electronics joint venture chain. (previous post)
The rapid rise of e-commerce has also created an unexpected new challenge for traditional retailers. Walmart was quicker to recognize the trend, and last year bought a controlling stake in up-and-coming online retailer Yihaodian. But Carrefour has been slower to move into the space, with the result that so far it’s a non-player. To make the situation worse, a number of major e-commerce firms are now moving into the grocery business, one of Carrefour’s core strengths, and are trialing services that can delivery products in 2 hours or less. (previous post)
So where does all of this leave Carrefour? Based on all of the above, I’d say the company’s best option could be to sell a stake in its China operations to a cash-rich e-commerce partner. The only problem is that such partners don’t exist, since most major e-commerce firms in China are losing lots of money. One exception is sector leader Alibaba, though I don’t see Alibaba’s outspoken and aggressive chief Jack Ma fitting well with Carrefour’s more conservative culture. All of that said, it does seem that Carrefour wants to raise some money from a partial sale of its China operations, so I would expect to see either through an IPO or perhaps a stake sale to a strategic investor by the end of this year.
Bottom line: Carrefour is likely to make an IPO or sell a significant stake of its China operations by year end to raise cash.
Related posts:
