---
title: "Half of Foreign Retail Giants Exit China; Three Types of Enterprises Gradually Dominate"
description: "The withdrawal of foreign retailers marks the end of an era and the beginning of another. According to a survey by Southern Metropolis Daily, 12 of the 19 foreign retail giants that entered China in the past 20 years have exited, with only two performing well. As Auchan, Carrefour, and Metro exit one after another, local players like Wumart, China Resources, and Yonghui have risen to dominate the market, while new entrants like Costco and ALDI face an uncertain future."
author: "马宁宁 李俊强"
publisher: "New Distribution"
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telephone: "+8615854817671"
published: "2019-08-05"
language: "en"
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# Half of Foreign Retail Giants Exit China; Three Types of Enterprises Gradually Dominate

> The withdrawal of foreign retailers marks the end of an era and the beginning of another. According to a survey by Southern Metropolis Daily, 12 of the 19 foreign retail giants that entered China in the past 20 years have exited, with only two performing well. As Auchan, Carrefour, and Metro exit one after another, local players like Wumart, China Resources, and Yonghui have risen to dominate the market, while new entrants like Costco and ALDI face an uncertain future.

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The withdrawal of foreign retailers marks the end of an era and the beginning of another.
With the successive exits of Auchan, Carrefour, and Metro, the golden age of foreign retail giants competing in the Chinese market is drawing to a close. **According to a survey by Southern Metropolis Daily, of the 19 foreign retail giants that entered the Chinese market over the past 20 years, 12 have exited, and only 2 are performing well.**
Looking back 20 years ago, when foreign retail enterprises first entered China, it triggered a collective "wolf is coming" panic among local enterprises. Today, 20 years later, established foreign retailers like Auchan, Carrefour, and Metro have been defeated and exited, while local forces such as Wumart, China Resources, and Yonghui have risen to become the mainstay of China's retail market.
With the support of internet technology giants like Alibaba, JD.com, and Tencent, **what sparks will fly in China's retail market with the entry of a new wave of foreign supermarkets such as Costco and ALDI?**
**Over the past 20 years, more than half of foreign retailers have exited.**
Since the 1990s, with the gradual opening of China's retail industry to foreign investment, a large number of foreign retail enterprises entered the Chinese market, bringing with them the hypermarket model, advanced technology, and operational management experience. At that time, the immature local retail industry could only learn from the "foreign wolves" amid the impact.
Unexpectedly, after more than 20 years of competition and integration, more than half of the foreign retailers have now been defeated. Southern Metropolis Daily counted 19 foreign retail giants that entered the Chinese market over the past 20 years, of which 12 have exited. Although the remaining foreign retail enterprises have not yet exited, none have been adjusting and exploring new paths in recent years.
**For example, CP Lotus, which has been loss-making for years, recently announced its privatization; previously, the company frequently reduced store sizes, introduced new brands, and expanded multi-format operations.** Aeon Group has suffered losses in its mainland China business for two consecutive years, closing its Shenzhen Nanshan store and Shunde store last year, and is still improving its store portfolio. Walmart, meanwhile, is closing stores while expanding compact stores, and is developing its online market and digitalizing its stores through strategic cooperation with JD.com and Tencent.
"In the 1990s, foreign investors were eager to invest in China's just-opened retail industry, attracted by the rapidly growing consumer market, low labor costs, and low level of market competition. Today, some of these favorable factors are disappearing or weakening. Facing rising costs and declining performance, it is natural for foreign hypermarkets to choose to exit," said Pei Liang, president of the China Chain Store & Franchise Association.
Data from the China Chain Store & Franchise Association shows that over the past decade, the main costs of physical retail—rent, labor, utilities—have continued to rise, increasing from 4.5% of sales in 2009 to 8.9% in 2018, nearly doubling. Among them, rent as a proportion rose by 85%, and labor costs rose by 147%. **Looking at future trends, the increase in rent has slowed, but labor costs are still on the rise.**
However, in the view of Wang Xianqing, president of the Guangdong Provincial Association of Business Economics, the key to foreign retailers' defeat is their inability to adapt to Chinese consumption habits.
"Foreign retail giants are optimistic about the Chinese market and incorporate China into their global layout. This idea is not wrong, but the Chinese market is completely different from overseas markets. Their advanced management concepts may seem scientific, but they are 'not grounded' in China and are completely unsuitable for Chinese culture and consumption habits," Wang said. "The logic of European and American supermarkets is to open stores in the suburbs, where people shop once a week to buy all household items. But Chinese people go to shopping malls for excitement and human touch; besides shopping, they like to stroll around. The logic of European and American retail is that people go to the store, but in China, stores must actively attract and solicit customers. **In addition, European and American supermarkets target consumers with monthly incomes of $30,000–40,000, while most Chinese residents earn 7,000–8,000 yuan per month.**"
Data source: China Chain Store & Franchise Association
**The rise of e-commerce has dealt a heavy blow to foreign retail giants.**
On the other hand, the rapid rise of e-commerce has dealt another blow to the "acclimatization-challenged" foreign retail giants.
According to Southern Metropolis Daily's statistics, around 2010, China's retail market experienced the first "wave of foreign capital withdrawal," coinciding with the rapid development of e-commerce. "The 2008–2009 financial crisis had a significant impact on China's SMEs and residents' daily lives. In this situation, enterprises were more willing to use e-commerce to expand sales channels, and individuals tended to buy cost-effective products online," a retail industry insider pointed out. With the steady growth of China's internet users and government policies supporting the e-commerce industry, e-commerce players rose rapidly.
**In stark contrast, foreign retail giants experienced their first wave of losses and defeats.**
In February 2011, U.S. electronics retailer Best Buy announced it would close its nine stores in mainland China, and in December 2014, it sold its Five Star appliance business to Jiayuan Group, fully exiting the mainland market.
In May 2014, the deal between British retail giant Tesco and China Resources Enterprise (CRE) was approved, forming a joint venture. CRE injected HK$22 billion for an 80% stake. After the transaction, 135 Tesco stores were transferred and renamed "Vanguard." Data showed that in 2012, Tesco's sales were 13.2 billion yuan, with an average single-store sales of only about 100 million yuan across 121 hypermarkets and about 20 shopping malls, unable to break even.
In December 2014, UK's Kingfisher Group planned to sell 70% of its home improvement retailer B&Q China to Wumart for £140 million, focusing thereafter on the European market. Data showed that in the 13 weeks ending November 1, 2014, Kingfisher's retail losses in China reached £4 million, with sales falling 10.6% to £97 million.
**"The debut of Singles' Day in 2009 opened the prelude to online diversion of physical retail. As the main format in the retail market, foreign large-format supermarkets bore the brunt,"** Pei Liang said in his article "Reflections on the Exit of Foreign Retail." Meanwhile, according to data from the China Chain Store & Franchise Association, from 2009 to 2018, the average sales per store of foreign retail fell from 228.75 million yuan to 189.96 million yuan, and the number of new store openings began to decline year by year from 2014.
**In fact, e-commerce has impacted not only foreign enterprises but also local ones. However, it is precisely under the pressure of the offline retail industry's collective anxiety that the advantages of local enterprises have begun to emerge.**
Huang Huajun, executive vice president of the Guangdong Provincial Commercial Real Estate Investment Association and president of First Commercial Network, pointed out that the common advantage of local brands surviving competition lies in their flexible and agile operating models. "They generally build lean, cross-functional organizational structures, can take immediate action without waiting for multi-level discussions and approvals, learn by testing, and absorb others' strengths for their own use. At the same time, they deeply cultivate the local market, understand the needs of surrounding consumers, and adjust their course in a timely manner according to market needs."
**Local brands dominate the capital game.**
Since 2018, China's retail market has seen a second, more intensive wave of foreign capital withdrawal, this time with larger-scale losses and transfers.
In July 2018, Lotte Group transferred its remaining Lotte Mart stores to Wumart, having previously sold 72 stores to Shandong Liqun. It is reported that Lotte Department Store suffered losses of tens of billions of Korean won annually from 2016 to 2018, worsening after the THAAD incident in 2017, with even 12 stores up for sale having no takers.
In December 2018, France's Auchan entrusted all its China operations to RT-Mart and accepted Alibaba's new retail digital transformation. Data shows that since 2011, Auchan's expansion pace slowed significantly, with a sharp decline in new store openings.
On June 23, 2019, Suning.com's wholly-owned subsidiary Suning International planned to invest 4.8 billion yuan to acquire 80% of Carrefour China.
On June 25, 2019, Japan's Takashimaya announced its exit from China, with its only store in Shanghai closing on August 25. Since opening in 2012, the store had undergone a series of adjustments in regional planning, product categories, services, and formats, but still could not offset losses, with consecutive losses of 980,000 yuan, 1.14 million yuan, and 8.66 million yuan in the fiscal years since 2017.
In July 2019, it was widely rumored that Wumart and Yonghui Superstores had entered the final round of bidding for Metro China's business. Public data shows that Metro's revenue gradually declined since 2014, from 59.22 billion euros in 2015 to a sharp drop of 63% to 21.87 billion euros in 2016.
**Notably, this wave of foreign capital withdrawal has become an opportunity for local Chinese newcomers to accelerate expansion.**
"With the help of the capital market, local retail enterprises like Yonghui have grown rapidly and now have the strength to expand and acquire worthy targets," Huang Huajun told Southern Metropolis Daily. "Secondly, the power of new retail is also rising; for them, physical stores are an important bargaining chip for future competition."
"Acquisition is a fast track for local enterprises to expand," Wang Xianqing also told Southern Metropolis Daily, pointing out that local brands now far surpass foreign brands in strength. The watershed is precisely the past two years, with the exit of Auchan and Carrefour, marking China's entry into an era dominated by local retail brands.
Wang Xianqing divides the current Chinese retail forces into three levels:
**First, national retail giants,** such as listed companies like Suning.com, Yonghui Superstores, and Better Life, whose strategies and tactics are tailored to China's national conditions, possessing both applied technology and familiarity with Chinese consumption trends;
**Second, a noteworthy group is the newly emerging regional retail enterprises across the country,** which hold certain advantages locally, can find product structures that suit local consumers, appropriately avoid competition with stronger players, but lack the strength for national expansion;
**Third, small supermarkets in township markets,** which also fare well in their respective areas.
**Costco and ALDI step onto the new battlefield of Chinese retail.**
**Despite the successive failures of many foreign retailers, the Chinese market still attracts more foreign retail giants to take on the challenge.**
On June 7, German retail giant ALDI opened two stores in Shanghai's Jing'an and Minhang districts, marking ALDI's first pilot stores in Asia.
It is understood that the two stores offer a total of more than 1,300 selected products, including 15 categories such as Chinese and foreign hotel supplies, leisure snacks, fresh food, ready-to-eat food, ready-to-cook food, and daily necessities, covering both imported and locally selected products. In addition, ALDI's WeChat mini-program mall has also been officially launched, offering fast delivery within 3 kilometers of the stores.
Similarly, in August this year, U.S. retail giant Costco will open its first store in China in Shanghai's Minhang District. Costco is the largest membership-based warehouse club chain in the U.S., known for its strong membership system, low margins, and curated product selection. It currently has over 700 stores and nearly 90 million members worldwide, and is regarded by Walmart as its number one rival.
**"The withdrawal of foreign capital is the end of an era and the beginning of another,"** Pei Liang said. From the consumer perspective, price-led homogeneous retail is on its last legs, and quality and convenience have become core demands of people's lifestyles. Retailers pursuing core values such as quality and convenience are showing vitality and brilliance. The most convincing evidence is that the moment Carrefour transferred its equity was also the moment foreign discount stores ALDI and Costco opened stores in China.
But Wang Xianqing believes there is no need to be overly nervous about the entry of ALDI and Costco. "Like Carrefour and Metro before them, they think they can conquer the Chinese market, but they face the same cultural differences between Europe, America, and China. Whether they can adapt remains to be seen."
Source: Southern Metropolis Daily (ID: nddaily)


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