Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Low Growth For Global Retailers In A Troubled Chinese Economy

International retailers operating in China have posted their lowest year-over-year growth increases in a decade as the nation’s economy stumbles and a variety of additional  problems eat away at bottom lines.

Major challenges to global retailing profitability in China include increased rents for stores, strong Chinese competition for consumers, an explosive increase in Internet buying, and generally changing market conditions, say retailing analysts.

Numbers tell the story.  Average sales growth last year of the 100 largest retailers was 8 percent year-over year, a drop of 10.5 percent from 2011, according to data from the China National Commercial Information Center.

Retailing outlets also took a hit last year, with 26 store closings.  Among the shuttered outlets were five Wal-Mart stores and two Carrefour SA’s, a French firm.  All seven outlets of the big German retailer, Media Mart China Ltd., were also closed in 2012 after a run short of three years.

While global retailers in China were struggling, total year-on-year growth of Chinese retail sales was a respectable 14.3 percent, according to data from the National Bureau of Statistics.

Four Tesco China shops were closed in different provinces, consolidating retailing operations for the U.K. firm.

Tesco China’s closings reflect problems affecting other international retailers.

“The four stores we [Tesco China] closed were quite widespread and difficult to manage,” said Paul Ritchie, CEO of Tesco China.

“China is the most challenging market for international retailers,” he said. “You can find retailers such as Carrefour and Auchan. Everybody is here.”

With too many players — so-called hypermarkets — saturating big city markets, the profit pie is being sliced ever thinner.

But some Chinese retailers are also suffering from the no longer robust domestic economy.  Hong Kong’s CP Lotus Corp closed a Beijing Store, in the wake of a rent increase and subsequent dollar losses.

Chinese retail sales from a physical store, however, may soon be eclipsed by e-tailing sales,  China’s Internet sales in 2012 ran about $190 billion to $210 billion, second only to the U.S., which posted sales of $220 billion to $230 billion.

China is expected to become the world’s largest e-tailer by 2020, with annual sales tipping $420 billion.

Bottom Line: China’s once golden era of unlimited potential for foreign business development has passed.  New, more difficult market conditions have now require foreign developers to rethink their investment in China and formulate new strategies for success.

More from our brands