Let China's Retail Wars BeginNewly unfettered foreign chains could grab more of China's ma

Let China's Retail Wars Begin

Newly unfettered foreign chains could grab more of China's market. On a cold and windy Friday afternoon, Li Fang is rushing to get some shopping done before the weekend begins. And the 30-year-old human resources manager knows exactly where she wants to go: the Carrefour hypermarket, a 10-minute bus ride from her apartment in north Beijing. it's not the cheapest option, but the French-owned store has all the meat, vegetables and fruit she needs. "Carrefour offers high quality and a better variety of products compared to other supermarkets," she says.

In recent years, major international chains like Carrefour SA of France and Wal-mart Stores, Inc. of the United States have expanded aggressively in China. Local Chinese retailers have loudly protested this and lobbied heavily for protection from the new competition in price and service that these major retailers have set off. Earlier drafts of the law had included a requirement for a system to rate and punish foreign retailers who had previously set up stores without central government approval. Another proposal would have prohibited foreign retailers from opening stores in cities that haven't drawn up detailed maps of planned retail sites, which would include many smaller cities.

Many more Chinese will soon get a chance to sample the quality and variety at Carrefour and other foreign-owned stores. In keeping with the conditions for China's membership in the World Trade Organization, Beijing on Dec. 11 lifted most restrictions on foreign retailers. Gone are limits on the number of stores, rules confining them to large cities, and regulations capping the foreigners' stake in local ventures at 65%.

China erected those hurdles to give its own companies a chance to copy the West's big-store model—and they have done so with great success. The top four retailers in the country are all run by the government or local entrepreneurs, led by a rapidly expanding chain called Shanghai Bailian. But the foreign companies are nipping at the locals' heels, and they have big plans for expansion now that the barriers have been tom down. Pads-based Carrefour has some 240 stores in China, and plans to open as many as 150 more this year. Its 2003 sales of ＄1.8 billion make it China's fifth-biggest retailer. China "is very important for our future," says Jean-Luc Chereau, executive manager of Carrefour China.

PREMIUM ON CONVENIENCE

Carrefour was quick to get into China and often pushed the regulatory envelope, bypassing Beijing and cutting deals with local governments. Although that strategy got Carrefour into hot water at the time, the company has emerged as the undisputed leader. It has even bested its Bentonville (Ark.) rival, Wal-Mart Stores Inc., (WMT) which has 43 stores in 20 Chinese cities, and another 10 in the works this year. Germany's Metro is the No. 3 foreign player, with 24 stores and another 40 within five years. All told, dozens of foreign companies have opened in the mainland.

Why the rush？ Over the past 20 years, retail sales in China have jumped nearly 15% annually, to some ＄628 billion in 2004—making it the third-largest market on earth. And consumer expectations have shot up even faster. Just a decade ago most Chinese were content to line up in state-owned stores to buy whatever meager products were available, then shuffle off to outdoor markets for meat, eggs, and vegetables. Now both local chains and the multinationals are pushing out the stodgy old state retailers and mom-and-pop shops by building big, convenient stores in choice central locations in Beijing, Shanghai, and Guangzhou. With the end of geographic restrictions, the battle for dominance will shift to smaller cities.

The customers are a middle class that today totals at least 100 million. These shoppers like to buy clothes, TVs, and groceries at clean, modem outlets with a full ran

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