Economy

Markets

Industries

Insights

Reports

Events

Global retailers feel China chill

(Agencies)
Updated: 2009-01-21 14:38

Recession shockwaves are swamping China's main coastal export zones and spreading, pushing a fragmented and once fast-growing retail sector to consolidate as sales and profit margins shrink.

Global giants such as Wal-Mart Stores and Carrefour will benefit along with China's growing consumer class, but rapid expansion has caught some over-extended, as their home markets collapse in the face of a sharp economic downturn.

Special Coverage: Coping with Financial Crisis Related readings:  China's retailers fight hard to keep market share  New Year's retail sales open with a bang  Price slash in Wal-Mart stores  US retail sales plummet for 6th month in a row

China's $824 billion retail sector is still one of the world's fastest growing. Smaller than Germany's in 2003, the market could be almost twice as big by 2013, according to Euromonitor, a global market research firm.

"As the large get larger, major domestic and foreign players with strong parents should survive as the market consolidates," said Mavis Hui, retail analyst with DBS Vickers in Hong Kong.

Department stores such as Hong Kong-based Parkson Retail are pushing discounts to regain sales, and Kingfisher, Europe's largest home improvements retailer, is closing stores ahead of the week-long Chinese New Year shopping period.

As China's economy slows sharply, some retailers may be forced to rethink their strategy.

"We're aware of some foreign retailers in China trying to sell their operations, which could be picked up by someone else at bargain prices," said Graham Matthews, partner with PricewaterhouseCoopers (PWC) in Shanghai, noting home improvement chains are being hit hard by the global property market collapse.

Weak sales

Standard & Poor's downgraded its outlook for Parkson, China's second-largest department store chain, to stable from positive earlier this month, after a weak 7-8 percent same-store sales growth estimate. "We expect the weak sales trend to persist in 2009," S&P said.

Retailers globally are struggling as consumers cut back on spending amid rising unemployment and fears of a deep recession.

US department store chain Gottschalks Inc filed for bankruptcy last week, the latest in a list of battered retailers. Hong Kong-based garment retailer U-Right International, which rapidly expanded to over 600 stores throughout China, filed for bankruptcy in October 2008 after running out of cash.

But Carrefour, China's leading hypermarket retailer, which is buoyed by its recession-resistant grocery business, expects to open 28 new stores this year, up from 22 in 2008, though the French firm has said it would compete aggressively on price.

"Total retail sales could still rise by the mid-teens this year," said DBS Vickers' Hui. "But the steep discounts we're seeing could pressure margins for selective players."

Opportunity knocks

Deals may slow in the near term as risk appetite is low and those with cash may want to hold it, PWC reckons. But it sees opportunities.

Kingfisher, owner of the B&Q franchise, is seen as a prime target. It posted a surprise third-quarter loss in its China operations late last year as sales slumped by a third.

   Previous page 1 2 Next Page  

   Previous page 1 2 Next Page