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Foreign retailers shop for new growth model

 Foreign retailers aim to pursue new business models in China to compete with their mainland counterparts, as a surge in e-commerce crimps margins across the board. 

In its latest attempt to find the right model for growth in the nation, global retailer Tesco Plc opened a large shopping mall, called Tesco Lifespace, in April in Guangzhou, the capital of Guangdong province. Tesco owns the mall, which will help the Britain-based retailer maintain sustainable development amid fierce retail competition, according to Chen Pei, operations manager of Tesco Property Ltd. 

The company has nine Lifespace stores and 117 hypermarkets across China. The Lifespace mall in Guangzhou includes top international brands, providing food, entertainment and fashion. According to Chen, Tesco plans to expand the number of such stores to 15 to 20 in South China within the next five years. 

After entering China in 2004, the chain established its property business in the nation in 2008. Last year, Tesco closed four stores in China as it sought to focus on what company sources called "strategically important areas." 

A boom in e-commerce, coupled with a slowing economy, has made retail, characterized by razor-thin margins, even more challenging in recent years. According to sources at www.china-consulting.cn, retailers in China experienced a 10.4 percent decline in net profits last year, the first decline in the past four years. 

For both Chinese and foreign retailers, the traditional model relying on fast expansion to raise leverage with suppliers and therefore increase profits is no longer working amid weakening purchasing demand.  

Sources with the association said the net profit of the top 50 chain retailers in Guangdong plunged in 2012 due to rising costs. For example, a local retail giant, Guangzhou Grandbuy, reported a net profit decline for the first time since it was publicly listed in 2007. Its operating revenue grew just 2.3 percent year-on-year in 2012. The weak numbers are mainly attributed to rising online shopping and increased operating costs for retailers. 

In order to sustain growth in the Chinese market, Wal-mart plans to open seven Sam's Club stores (membership-only warehouse clubs) in China in the next two or three years targeting affluent local families, sources with the company said. 

The Guangzhou Sam's Club store, in the city's booming Panyu district, also began selling fresh and frozen products online. The online service delivery area covers most of Panyu district and will soon expand to other districts such as Haizhu and Tianhe. "We have always attached great importance to e-commerce service in our stores. We will have more products covered in the online purchasing service in the near future," said Yan Haiyun, deputy director of the Sam's Club marketing and e-commerce department. 

In an effort to boost Chinese buyers' confidence, Wal-Mart said it will also invest 100 million yuan (.3 million) in food safety management in its stores across China over the next three years. In its latest initiative, the company launched a mobile testing program in Guangzhou, covering its 70-plus stores in Guangdong province. 

Xinhuanet 7/16/2013

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