Foreign retailers in China are altering their retailing strategies in response to fierce competition, changes in consumer demands, and rising costs.  China’s retail market continues to expand.  However, some foreign retailers have faced closures and mergers recently.  Last year, the world’s largest convenience store, 7-Eleven, experienced significant closures.  Walmart had to close two of its stores in Quxi and Shenzhen in April of this year.  Home Depot closed the last seven of its remaining China stores last year after significant losses.  Best Buy also closed its nine stores in 2011 after discovering that its Western business model did not work in China.

In addition to closures, other foreign retailers have slowed their expansion efforts in China.  Walmart had once estimated that it would open around 50 stores a year in China.  That estimation has now decreased to about 33 stores per year due to changes in store location options, corporate strategy, and business performance.   Overall, foreign direct investment in China declined 3.7% in 2012.

However, some foreign retailers have increased their expansion efforts in China.  Carrefour has said that it will retain an annual growth rate of 20 to 25 new stores in China annually and announced the opening of its first hypermarket in the Inner Mongolia region.  Germany’s Metro Group opened 12 stores in mostly second-and third-tier cities in China.

In previous decades, expansion to China was attractive for foreign retailers because they had a competitive advantage over domestic Chinese retailers due to advanced management and technology systems.  In addition, foreign retailers were given preferential treatment in land use and tax benefits.  However, growth in e-commerce and rising costs in first-and second-tier cities are putting tremendous pressure on foreign retailers.

Discussion Question:

 Describe the state of foreign retail investment in China?

 

SOURCE: Li Jiaboa and Li Woke, China Daily, May 31, 2013