Retail therapy
(China Daily)
Updated: 2006-09-11 10:24

Other retailers went through a wave of mergers and acquisitions. Last month, Wumart Stores Inc, the largest retail chain in Beijing, bought MerryMart, the fourth-largest retailer by size in the Beijing area to consolidate its leadership in the city. Gome, the nation's largest home appliance retailer, bought China Paradise, the third largest player in the sector, after US-based Best Buy acquired Jiangsu Five Star Appliance in May.

Local retailers expect the consolidation to reduce costs and fierce competition, but industry insiders warn the craze for size can be dangerous.

"Local companies should pay more attention to the improvement of overall efficiency and management rather than just focusing on size during expansion," says Celia Shen, senior manager of consultant BearingPoint, adding that some merger cases have already fallen into the trap of chasing size rather than efficiency.

For instance, in early 2005, Shanghai Brilliance (Group) Co bought 60 per cent of Dalian-based Dashang Group Co Ltd, the second largest player in the sector, hoping to create a local retail giant. Despite the formidable size, the alliance lasted only lasted one and half years. Last month, Brilliance decided to pull out its investment in the joint venture after struggling to integrate the companies' businesses.

"Local retailers, especially medium-sized ones, could focus on regional markets or even some niche markets, try to establish their dominance in such markets and thus strengthen their competitiveness," says Huang Guoxiong, a professor of economics at Renmin University in Beijing.

Some local retailers like Beijing-based Wumart have already made that part of their growth strategy. The Beijing-based retailer had 12 hypermarkets as well as 47 supermarkets and 436 mini-marts at the end of 2005, most of which are located in the capital and Tianjin.

"Wherever we go, we try to be the leading player in the local market, and have the largest number of stores," says Xu Ying, Wumart's director of finance. "The strategy allows us to apply more management tools such as IT systems and reduce costs in the regional market."

Wumart bought Yinchuan Xinhua Co in April as part of its expansion outside Beijing. Yinchuan Xinhua, with four department stores and 23 supermarkets in Yinchuan, owns the largest market share in the capital city of the Ningxia Hui Autonomous Region.


(China Daily 09/11/2006 page1)


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