International Retailers Struggle In China

In recent weeks, many of the large international retailers have announced changes in their expansion plans for China. Home Depot (NYSE:HD), the large U.S. do-it-yourself chain, is closing stores, as is Tesco PLC (LSE:TSCO.L), the large U.K. retailer. Even the two earliest entrants into China’s retailing industry, Wal-Mart Stores Inc. (NYSE:WMT) and Carrefour SA (Paris:CA.PA), are struggling to make their business models work in the country.

On September 14, Home Depot announced that it would be shutting its remaining seven stores in China. Between 2009 and 2011, the company had closed five of its original 12 Chinese stores due to rising real estate costs. Tesco also announced that it is shutting down four stores as part of a consolidation campaign, apparently giving up on its earlier goal to double the number of its Chinese hypermarkets to more than 200 by 2016.

Meanwhile, Wal-Mart has also announced that it is having a China rethink, admitting it had made mistakes in its haste to expand and saying that it has cut by one-half the amount of new square footage that it will add in the country. With respect to Carrefour, rumors are circulating that the French hypermarket operator is in discussions with China Resources Enterprise about selling its China operations. Apparently, the French firm has also spoken to Tingyi, another major food manufacturer, and COFCO, the large Chinese agribusiness conglomerate.

Many analysts blame these strategic about faces on the part of international retailers on the slowdown in China’s economy. Last week, China announced that its GDP growth slowed to 7.4 percent in the third quarter, down from 7.6 percent in the second. China’s economy grew by 7.7 percent in the first nine months, compared to 7.8 percent during the first six months of the year.

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Come On, China, Buy Our Stuff!

A Gap Inc. store in Shanghai, China.

A Gap Inc. store in Shanghai, China.

By NYT ADAM DAVIDSON    Published: January 25, 2012

The first time I visited China, in 2005, an American businessman living there told me that the country was so huge and was changing so fast that everything you heard about it was true, and so was the opposite. That still seems to be the case. China is the fastest-growing consumer market in the world, and American companies have made billions there. At the same time, Chinese consumers aren’t spending nearly as much as American companies had hoped. China has simultaneously become the greatest boon and the biggest disappointment.

It wasn’t supposed to be this way. In 2000, the United States forged its current economic relationship with China by permanently granting it most-favored-nation trade status and, eventually, helping the country enter the World Trade Organization. The unspoken deal, though, went something like this: China could make a lot of cheap goods, which would benefit U.S. consumers, even if it cost the country countless low-end manufacturing jobs. And rather than, say, fight for an extra bit of market share in Chicago, American multinationals could offset any losses because of competition by entering a country with more than a billion people — including the fastest-growing middle class in history — just about to buy their first refrigerators, TVs and cars. It was as if the United States added a magical 51st state, one that was bigger and grew faster than all the others. We would all be better off.

More than a decade later, many are waiting for the payoff. Certainly, lots of American companies have made money, but many actual workers have paid a real price. What went wrong? In part, American businesses assumed that a wealthier China would look like, well, America, says Paul French, a longtime Shanghai-based analyst with Access Asia-Mintel. He notes that Chinese consumers have spent far less than expected, and the money they do spend is less likely to be spent on American goods. Read more of this post

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