After nearly a decade of trying to crack the retail egg that is China, Tesco, the world’s No. 3 retailer has thrown in the towel.
The British retailer announced plans to create a joint venture with China’s state-owned China Resources Enterprise Ltd., which would marry Tesco’s 131 China stores with CRE’s nearly 3,000 Vanguard units across China and Hong Kong, creating over $15 billion in sales—much more than Tesco’s reported China sales of $2 billion. The deal, though, wipes out the Tesco name from the Asian market, as the retailer will only assume a 20 percent stake in the new venture, Reuters reports.
“This may look win-win, but in reality, Tesco is saying ‘I can’t figure out China,'” one analyst told Reuters. Like many other foreign retailers before them, Tesco struggled to carve out a solid brand identity for itself among the fast-growing China market, where Walmart and France’s Carrefour have been the only foreign supermarket brands that have managed to compete with local outlets.[more]
Tesco faced another unforeseen challenge with the surge of e-commerce in China, where the country is falling into a similar “showrooming” trend that the US has experienced, setting off all-out price wars among retailers—usually resulting in little to no profit.
A US cherry promotion on Tmall, which saw cherries reaching Chinese consumers just 48-72 hours after being picked saw a sell out in 3 days
— The China Skinny (@thechinaskinny) August 13, 2013
It would seem that Tesco’s grocery sales might bolster its bottom line but even in that segment, Chinese consumers are turning to online sources. With food quality scandals nearly a daily occurrence, Chinese consumers are upping their grocery budgets and increasingly looking to shell out for direct-from-the-farm suppliers. One prediction has online grocery sales going from 11.5 billion yuan ($1.9 billion) to 40 billion yuan ($6.5) in the next few years. And as any Chinese shopper who has been in a Tesco knows, the retailer’s organic grocery selection is anemic even compared to the low bar set by rivals Carrefour and Lotus. Walmart’s recent purchase of a controlling stake in Yihaodian, China’s largest online supermarket, puts it in a far better position than Tesco to face the turbulent retail space changes.
Tesco isn’t the only one retreating. Home Depot shuttered all seven of its outlets in 2012, with Best Buy falling just prior. Earlier this year, European electronics retailer MediaMarkt, citing cost pressures, closed all of its China stores. Thailand’s Our Lotus and Japan’s Ito Yokado closed their respective Beijing department stores in 2013. Many are suggesting Carrefour could be the next big retailer gassing up to go—or perhaps strike a deal similar to Tesco’s JV.
As it struggles to hold on in Turkey, and after abandoning efforts in Japan and the US, where its Fresh & Easy chain failed to take hold, Tesco is instead pumping over $1.5 billion into “store revamps and new food ranges,” to revitalize its business in its home market, though salvation may be hard to come by in cash-strapped Britain