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As Carrefour’s chief executive, Alexandre Bompard, says the retailer is not planning to exit any further countries, and its country operations in Belgium and Poland expand their offer, we round up news for the retailer.

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France-based Carrefour has signed an agreement to sell an 80% stake in its China-based operations to Suning.com. The deal will see Suning pay Carrefour €620.0m in cash, valuing Carrefour China at an enterprise value of €1.4bn.

Carrefour may exit China completely

The transaction is expected to close by the end of 2019, subject to regulatory approval. Carrefour will retain a 20% stake in the business and two out of seven seats on Carrefour China’s Supervisory Board. However, the agreement allows Carrefour to sell the remaining stake in two years’ time.

Carrefour China has struggled in recent years

Carrefour has been presence in China since 1995, but it has been struggling to grow in recent years amid fierce local competition and the rise of the ecommerce channel more widely. Carrefour has implemented several turnaround plans in recent years, but despite these, it has generated negative like-for-like sales since 2011. At the end of its 2018 financial year, the retailer operated 210 hypermarkets and 24 convenience stores and generated total net sales of about €3.6bn and EBITDA of €66m.

About Suning

Suning is a Chinese electronics retailer and ecommerce player. It operates more than 8,881 stores in more than 700 cities and one of the country’s largest B2C ecommerce platform. Suning said in filing to the Shenzhen stock exchange that “the stake acquisition will allow Suning.com to strengthen its brand, as well as boosting its marketing capabilities, food quality control and supply chain management in the fast-moving sector”.

Where does it leave Carrefour’s agreement with Tencent?

One area not answered by Carrefour’s announcements is where the sale of Carrefour China leaves its existing relationship with Tencent. Announced in Q1 2018, the agreement has been highlighted by Carrefour Group’s chief executive, Alexandre Bompard, as supporting its growth, while the president and chief executive of Carrefour China, Thierry Garnier, has said how China is a specific market that has helped us to learn and to understand the future. With Carrefour potentially exiting China over the course of the next two years, where this leaves its agreements and what it can learn from the country in question.

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JD.com and Alibaba reported record breaking results for the 18-day campaign, with sales value up by +26%YoY.

The festival has evolved to be a major midyear ecommerce event

6.18 shopping festival, created by JD.com, now joined by Alibaba, has become a midyear event that can match the scale of the 11.11 global shopping festival.

The total sales transaction reached a new high this year of US$29.2bn, up by +26%YoY.  Around 200,000 brands took part and more than 110 brands each generated sales in excess of CYN100mn (US$14.5mn).

There are four key learnings from this year’s event, which are summarised below.

Less developed regions becoming the new growth engine

There has been a steadily rising demand from consumers in lower tier cities for quality products. With an increase in discretionary income, consumers in less developed areas are quickly becoming a main consumption engine and really drove this year’s 6.18 festival:

  • Volume growth was twice as high in lower tier cities than the overall growth on JD.com
  • Percentage of new users from lower tier cities was also much higher than the percentage of new users overall
  • 48% of the products newly launched on Tmall during the event were purchased by customers in less developed areas

Innovative approaches to widen reach and build engagement

This year’s event saw an array of innovative ways to reach customers and build engagement. The highlights are:

  • Social media played a key role: Two marketing campaigns had more than 100 million participants, all involving sharing on social platforms
  • Livestream to promote brands: Taobao’s livestreaming was an effective and important channel to reach shoppers. With hosts making recommendations for “must-buy” products, Taobao livestreaming helped generate more than CYN13bn sales. The number of livestreaming sessions hosted by brands increased by more than 120% vs. last year
  • Direct manufacturer-to-consumer model: Taobao’s Daily Deals, a channel which allows consumers to ordered customized products straight from the manufacturers, generated over 420 million orders

Group buying was a major push

Alibaba’s group buying platform Juhuasuan drew 300 million new customers. The platform has been repositioned recently for those looking for quality goods at competitive prices. Group buying via WeChat was also available in Hong Kong during this year’s event.

Technology used to meet customer expectations

Technology played a key role during the event to improve customer experience and exceed their expectations. JD.com’s smart customer service robot dealt with more than 32 million inquires, freeing up human services for more complicated inquires. 91% of orders from JD.com’s fulfilment centres were delivered on the same day or next day.

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Costco Wholesale Corp. is set to open its first bricks-and-mortar warehouse in China this August.

A business based on membership strategy

After setting up an online store on Alibaba’s Tmall five years ago, the U.S wholesaling giant is to open its first physical warehouse in Shanghai’s Minhang district on the 27thof August.

Costco’s model in North America has been based on families buying bargain products in bulk, transporting them in their cars and then storing them at home. Its business success is based on building a loyal shopper base through its paid membership program with low price items. Costco pledges refunds even after the goods are consumed. The firm’s membership strategy has been largely successful in most markets, with 88% renewal rate globally.  

Costco China will offer two types of memberships – one for families and the other for corporation, both with an annual price of US$43. Customers have been able to apply for memberships since April.

Our view

Costco will have strong competition from Walmart China’s Sam’s Club, also a membership-only retail club chain.

Sam’s Club has the advantage of entering the China market 20 years earlier and cumulated a wealth of knowledge and experience of the market. During that 20 years, Sam’s Club has gradually shifted its target to high end and upscale market and focuses more on quality premium products than low price. The retailer has been accelerating store expansion the last two years and plan to have 40 stores by end of 2020.

Expansion into China has many benefits for Costco, alleviating over reliance on North America being one of them. The question is whether Costco will change its strategy in China.

Costco currently runs a total of 770 warehouses worldwide, including 12 each in Taiwan and South Korea and 26 in Japan.

 

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