The contest between large Chinese retailers and their overseas competitors escalated Monday after South Korea’s biggest department store chain, Lotte Shopping, agreed to buy 72% of Hong Kong-based Times for $628 million, having out bid Beijing-based Wumart Stores.
With the acquisition of 53 hypermarkets and 12 supermarkets, Lotte gained a strong foothold across the most affluent provinces in eastern China including Jiangsu, Zhejiang, Anhui and Shandong, and the municipality of Shanghai.
Figures from the China General Chamber of Commerce show that, in 2008, foreign-invested stores accounted for 30% of the top 10 retailers’ sales revenue, rising from the 4.6% in 2001.
Yao Jian, spokesman of the Ministry of Commerce, said the increased foreign investment brings improvements to the domestic retail trade in terms of technology and supply chains.
Du Yanhong, an analyst from Shenzhen Zhongzhe Investment Consulting said domestic retailers lag behind in purchasing ability, logistics, quality, shopping environment, management experience and services. A report from Commercial Times said that the logistics cost in China is as high as 21% as opposed to the 10% average in the United States.
To save costs, foreign giants such as Wal-mart and Carrefour are adopting centralized purchasing and distribution systems.
Alibaba.com reports that Pei Liang, secretary-general of China Chain Store & Franchise Association, told the Global Times that the local retailers should go further into smaller communities and rural markets to gain more grassroots advantages.
He said, "Local retailers will discover their competitive edge there because the foreign giants are good at hypermarkets. The fourth and third-tier cities will have more chances for local retailers to compete with foreign giants."