Overseas chain stores find the going tough in China

Overseas chain stores find the going tough in China

China was an ideal business destination for global retailing giants in the 1990s. However, changing conditions now make the journey here less easy.

In the past two years, chain store operators have reported the lowest year-on-year growth rates in 10 years.

International brick-and-mortar retailing giants are facing unprecedented difficulties in China, including increasing rental costs, fast-growing Chinese counterparts and competition from e-commerce, industrial experts said.

In 2012, the average sales growth of top 100 large retail companies in China was 8 per cent year-on-year, down 10.5 percentage points from 2011, according to the China National Commercial Information Center.

In addition, the centre reported that the international brick-and-mortar retailing giants closed about 26 stores in China in 2012.

In contrast, the year-on-year growth of total retail sales in China was 14.3 per cent last year from 18.12 trillion yuan (S$3.6 trillion) in 2011, the National Bureau of Statistics said.

Weak economic conditions and rising market competition caused many foreign retailers to suffer in 2012 and forced them to reconsider their development policies in China.

"China is the most challenging market for international retailers. You can find retailers such as Carrefour and Auchan. Everybody is here," said Paul Ritchie, chief executive officer of Tesco China.

The departure of Media Markt China Ltd has become the most recent case to suggest foreign retailers' overseas successes might not be easily replicated in China. The German retailing giant closed all its seven stores in the country on March 11. In contrast with Best Buy Inc, which operated in China for five years, it only survived in China for less than three years.

"The decision to close the stores was made in response to the highly competitive market environment and associated high investment of building and operating the necessary sales," said a statement from Media Markt China Ltd on Feb 27.

Media Markt is not the only foreign retailer to adjust its strategy in response to changing market conditions.

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