Wu­mart feels pres­sure of ris­ing costs and tougher com­pe­ti­tion

China Daily (Canada) - - BUSINESS - By LYUCHANG andWANG ZHUOQIONG

De­spite a boom­ing re­tail mar­ket, Wu­mart Stores Inc, one of China’s largest su­per­mar­ket chains, on Thurs­day re­ported its first de­cline in full-year net profit in more than six years.

Wu­mart achieved sales of 18.9 bil­lion yuan ($3.1 bil­lion) in 2013, up 9 per­cent. But net profit fell 23.7 per­cent to 459 mil­lion yuan, the first slide since 2008.

The com­pany at­trib­uted the de­cline to con­sol­i­da­tion and re­struc­tur­ing of the store net­work in the past year, driven by ris­ing rents and op­er­at­ing costs.

Bei­jing-basedWu­mart closed at least 52 stores of var­i­ous types last year. It closed out­lets where leases were ex­pir­ing or stores were un­der­per­form­ing.

“Wu­mart shares were flat over the past two years. But the de­cline in profit was prob­a­bly more re­lated to in­creased op­er­at­ing costs in terms of rent, lo­gis­tics and la­bor, since the com­pany failed to grow faster than the mar­ket,” said Ja­son Yu, gen­eral man­ager of Kan­tar World­panel.

“The fact that Wu­mart re­mains a re­gional player, with most of its sales com­ing from the North [of China] and only a limited pres­ence in the East re­gion, also drags down their mar­ket per­for­mance,” he said.

Last year, Wu­mart dropped plans to ac­quire stores and an eq­uity stake from ri­val C.P. Lo­tus Corp.

Wu­mart “needs to strengthen its com­pet­i­tive­ness in the face of RT-mart and the fast emer­gence of Yonghui Su­per Stores, by ei­ther

Wu­mart Stores Inc’s sales in 2013 in­creas­ing its or store said.

Wu­mart, which ri­vals Wal­mart, op­er­ated by Wal-Mart Stores Inc, and RT-Mart, run by Hong Konglisted Sun Art Re­tail Group Ltd, had sev­eral years of steady growth in profit in China’s boom­ing re­tail mar­ket. Net profit soared from 361 mil­lion yuan in 2008 to 602 mil­lion yuan in 2012.

But the Chi­nese re­tail mar­ket has be­come a tougher nut to crack, even for in­ter­na­tional gi­ants, as fierce com­pe­ti­tion and ris­ing rents in a highly frag­mented mar­ket have forced many re­tail­ers to close or re­lo­cate out­lets.

The Chi­nese sub­sidiary of Wal­mart closed more than 10 stores in 2013 and in­vested nearly 500 mil­lion yuan to up­grade about 50 ex­ist­ing stores. It said these moves would op­ti­mize its dis­tri­bu­tion net­work and make in­ven­tory man­age­ment more flex­i­ble.

Liu Hui, a se­nior an­a­lyst of Bei­jing-based Join Uni-re­tail con­sult­ing com­pany, said that Chi­nese re­tail­ers are go­ing through a pe­riod where they must re­new their leases— and find­ing that they can no longer af­ford the soar­ing rents.

“It’s a turn­ing point for re­tail­ers in China. With al­ready-slim mar­gins, rents have be­come the last price com­pet­i­tive­ness dif­fer­en­ti­a­tion,” he straw for re­tail out­lets, forc­ing many out of game,” he said. “Re­tail­ers have to ad­just their busi­ness strat­egy and fo­cus more on con­sumers’ pref­er­ences and pur­chas­ing habits to get food right.”

He noted that Chi­nese con­sumers, who usu­ally tend to buy only a few items per visit, pre­fer small lo­cal stores, so the big-box store model is no longer pop­u­lar and grocers need to change their strate­gies ac­cord­ingly.

Last year, Wu­mart es­tab­lished a fresh food busi­ness unit to im­prove its busi­ness in pro­duce, meat and pre­pared meals, which are driv­ing forces for Chi­nese hy­per­mar­kets.

In De­cem­ber, Wu­mart had 547 stores, mainly lo­cated in north­ern and east­ern re­gions such as the cities of Bei­jing and Tian­jin, as well as He­bei and Zhe­jiang prov­inces, com­pared with 529 a year ear­lier.

They com­prised 155 su­per­stores and 392 min­i­marts.

Na­tional re­tail sales to­taled nearly $2.1 tril­lion in 2012. It is es­ti­mated that by 2015, China will be the world’s third-largest con­sumer mar­ket af­ter the United States and Ja­pan, lifted by an ex­pand­ing mid­dle class.

But 2014 is ex­pected to be an­other chal­leng­ing year for re­tail­ers, which face slow­ing sales, higher costs and a tough chal­lenge from e-com­merce, ac­cord­ing to Kan­tar World­panel.

“We are see­ing vis­its to tra­di­tional re­tail­ers by shop­pers con­tinue to drop,” Yu said. Con­tact the writ­ers at lvchang@chi­nadaily.com.cn and wangzhuo­qiong@chi­nadaily.

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