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Retail giants on an expansion spree

By Tuo Yannan and Andrew Moody (China Daily)
Updated: 2009-04-04 08:03

Customers at a Wal-Mart checkout counter in Beijing.[Agencies]

Despite a continuous drop in China's overall foreign direct investment (FDI) in the past four months, multinational retail giants aren't showing any signs of slowing their expansion in the country.

Wal-Mart, the US retail giant that entered China in 1996, is set to open a further 23 stores by the end of the first quarter of this year, taking its total up to 140. It opened 19 stores in 2008 on top of the 30 it opened in 2007.

Carrefour said it would "keep the same speed" of opening new stores this year. The French hypermarket chain that first came to China in 1995 opened 23 stores last year and now has a total of 135 outlets.

Related readings:  Coach completes acquisition of retail business in China  China's retail sales up 15.2% in first two months  Retail networks expansion to create 1m rural jobs  Takashimaya to open store in Shanghai

7-Eleven, the world's largest convenience store chain, will open three to four stores concurrently in Shanghai at the end of March or the beginning of April. It is the first time that 7-Eleven is entering the Shanghai market and it reportedly plans to open 100 outlets there within the next three years.

While the deepening global economic downturn will take its toll on the consumption of high-end and luxury products, the impact on the sales of daily necessities will be much smaller, said Cao Lisheng, chief economist of the National Commercial Information Center of China.

"Compared with department stores, supermarkets will be less affected by the financial crisis," Cao was recently quoted as saying by Xinhua.

The dropping house rents in major Chinese cities also presents a good opportunity for retailers to expand their network, said Pei Liang, secretary-general of China Chain Store and Franchise Association.

The country's second and third tied cities are also attracting foreign retailers' attention.

"The second- and third-tier cities are promising markets as the infrastructure development would lead to a greater concentration of people moving there. Better communications and transport also means we will be able to reach our products to these locations more easily," said Barry Friedman, vice-president for corporate affairs, Wal-Mart China.

Friedman said Wal-Mart is closely watching the Chinese government's policies to increase domestic consumption, such as subsidizing farmers' purchase of home appliances.

But he said expansion in the more outlying areas of China would not be at the expense of the major urban centers. "I am not against the first tier cities. They are great markets and there is still potential for growth," he said.

"With markets in first-tier cities getting relatively saturated, China's second- and third-tier cities are opening up new vistas for profit growth," Pei said.

Compared with coastal cities, Pei said, China's central and western regions are less affected by the financial crisis and are more suitable for new expansion. While expanding their networks, foreign retailers are likely to see more competition on the price front this year, analysts said.

Carrefour plans to expand its program of directly purchasing agricultural products from farmers this year, said Chen Bo, spokesman of Carrefour China.

The French company will increase the percentage of such products in its total purchase from 15 percent to 50 percent this year, Chen said.

"By skipping the dealers, we can save a lot of costs and provide a 10 to 15 percent discount to our customers," Chen said.