Big-Box Chains' Efforts To Conquer China Hit A Wall

U.S. and European big-box retailers are continuing to flounder in China. Tesco's announcement on Friday (Aug. 9) that it is trying to form a joint venture with a major Chinese grocer is just the latest in a string of big-chain moves that are effectively erasing their brands from the Chinese mainland, according to Quartz.

Walmart (NYSE:WMT), France's Carrefour and Germany's Metro also had big plans to invade China and capture customers who now have more money to spend in Western-style hypermarkets. But with rising food and labor costs, increasing local competition and especially Chinese shopping habits, those plans have largely hit a wall.

The biggest problem seems to be those well-entrenched shopping habits. Western chains apparently assumed middle-class Chinese customers would behave like their U.S. and European counterparts, making weekly shopping trips and stocking up. Instead, Chinese consumers continue to shop almost daily for fresh food. They're also more likely to live in small apartments and lack cars, so they favor nearby stores. In effect, they treat the hypermarket like a local convenience store, according to a report last year by McKinsey.

That's made it rough for Western big-box stores. Carrefour is considering selling its Chinese operations or merging them with another chain, the Wall Street Journal reported in June. Metro said earlier this year that it will close its consumer electronics retail business in China to focus on its wholesale business. Walmart shut five stores in a single month last year, more than any of its competitors, according to a Chinese newspaper report.

And while Tesco planned to open 200 stores and 50 shopping malls by 2016 when it entered China a decade ago, its market share is now 2.4 percent and slipping. Under the potential deal it unveiled last week, Tesco would put its 131 Chinese stores under the control of an arm of the state-owned China Resources Holding and take a 20 percent stake in the venture. But it would also mean Tesco's brand could (and probably would) literally disappear from the stores.

Who is actually attracting the grocery shoppers that Westerners couldn't grab? The biggest Chinese hypermarket is Sun Art Retail Group with a 13.6 percent market share. It runs a big-box chain called RT Mart that appeals to traditional Chinese shopping habits with wet markets that feature live fish and fresh poultry. And though you wouldn't know it from the name, it's a joint venture with Auchan—the third-largest hypermarket chain in France.

For more:

- See this Quartz story
- See this McKinsey report

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