International analysis: Has China become too hard for retailers to crack?

Tesco and Carrefour’s difficulties in big-box stores are well documented, while Metro Group’s Media Markt withdrew earlier this year. Korea’s E-mart and Lotte Mart are both struggling.

Is this the end of the glorious days of international retailers in China? Why has the country suddenly become so hard to crack?

It has been almost a decade since China fully opened its retail market to foreign companies. There’s no doubt that big cities such as Beijing, Shanghai and Guangzhou and affluent coastal areas have become increasingly saturated.

Local retailers have grown rapidly by imitating and learning from international rivals.

Ecommerce has also had a huge impact, particularly on electronics, clothes and personal care products, putting pressure on specialist stores and hypermarket operators. But does China still have potential?

Although the miraculous growth of the past decade or so is unlikely to return, consumers’ incomes will continue to rise, albeit at a steadier pace. Virgin territory still remains - hundreds of tier three and four cities, possessing impressive consumption power, are waiting to be explored.

And not all international retailers are failing. Walmart’s purchase of the largest domestic online grocery retailer, Yihaodian, may be the best decision the US company has ever made in China.

The acquisition offered Walmart a first-hand opportunity to learn the dynamics of the ecommerce business in China.

French grocer Auchan’s venture RT-Mart - run jointly with RT-Mart in Taiwan - has become the leader in hypermarkets in China. It has based itself in small cities to avoid high rentals and competition, with a flexible but tailored store format, merchandising and promotions.

AS Watson’s health and beauty stores have become the first choice for many young consumers, thanks to its private labels, merchandising and accurate marketing. Despite having a small number of stores, Japanese-owned general merchandiser Ito Yokado has the highest sales per outlet because of its focus on tailored merchandising and thoughtful customer service, rather than wild ambition and rapid store openings.

So it seems that what separates the winners from the losers in China is how they do business.

There is no longer easy money for international retailers but there are still opportunities. Success can be found in a considered approach.

• Yujun Qui, retail analyst, Planet Retail.