Most vendors at the Carrefour Foshan store that closed since Jan 1 say they will talk with the French retailer about compensation. PROVIDED TO CHINA DAILY

Hypermarket in Guangdong province not open for peak season

In the run-up to the Spring Festival peak shopping season this year, a Carrefour hypermarket outlet in Foshan city of Guangdong province seemed unusually quiet.

The Carrefour store was closed on Jan 1.

Carrefour representatives could not be reached for comment on the closure, but Li Jia, public relations manager of Carrefour South China, was quoted by the Guangzhou-based Time-Weekly newspaper as saying that the store was shut because business was going downhill.

The Carrefour Foshan store opened on Feb 5, 2007. With a total area of about 22,300 square meters, the store at that time was the biggest one that Paris-headquartered Carrefour established in South China. The supermarket itself covered 8,500 square meters while the rest of the area held a number of other retail outlets.

A shop manager of the I'manfen undergarment store in Carrefour Foshan says that sales of I'manfen in its separate Lotus Foshan store were about three times the sales of Carrefour Foshan. A shop assistant of ShiGeFuKu Jewelry in Carrefour Foshan says the sales there were "no match" for those in its Foshan Walmart outlet.

Although vendors claimed business had always been slow in the Carrefour Foshan store, most shop owners were angry that the store closed during the new year holiday.

"With just one month's notice in advance, we had little time to find our next store. We have never come across such a short notice before," say a couple selling clothes at the Carrefour Foshan store.

Sales for the period from New Year's Day to the 15th day after the Chinese New Year, which begins on Feb 3 this year, can make up 20 to 30 percent of annual sales, says the shop assistant from ShiGeFuKu Jewelry, a well-known jewelry company in Guangdong. A shop manager of Jinggong Glasses at the Carrefour Foshan store says the shop's losses for the period "will be huge".

The company also did not compensate most of the vendors in the store, says Zhang Wenbo, director of the business development department of ShiGeFuKu Jewelry, which had just spent 600,000 yuan (69,848 euros) decorating its outlet at Carrefour Foshan.

Carrefour store vendors say they will talk to the retailer about compensation and threatened to bring the company to court if negotiations fail.

"Although our contract with Carrefour has not expired, it has refused to give any compensation to us. Our last attempt to reach consensus with Carrefour failed, but we will try to contact them again next week. If there is no progress, we will bring a suit against Carrefour, asking for a 900,000 yuan compensation," Zhang says.

Established in 1959, Carrefour opened its first hypermarket in France in 1963 and has grown to become the second-largest retailer in the world through many acquisitions and mergers.

Operating in 34 countries, Carrefour now has a total of 15,500 stores globally, providing job opportunities to about 475,000 people. It is estimated that 57 percent of its sales comes from outside France.

Carrefour Chief Executive Lars Olofsson expressed his pride over the company in a recent interview with The New York Times, saying that "there is no distributor in the world that has that kind of geographical footprint".

But the retail giant experienced a turbulent 2010, during which many of its stores were shut down.

At the beginning of 2010, Carrefour was forced to retreat from South Italy as well as Japan, reportedly due to inadequate sales profits in these two locations. Later in the year, it shut down 21 stores in Belgium and the headquarters building in France. At the end of last year, the company reportedly closed its business in Malaysia and Singapore and sold the 42 stores in Thailand.

In China, a Carrefour store in Dalian of Liaoning province was closed in March and another was closed in Xi'an, capital of Shaanxi province, in July.

Olofsson has guaranteed that "we have a solid profitability and we'll open as many stores as we can, keeping the quality that we offer", but many have questioned the quality of the products provided by Carrefour in the past year.

China Business Journal reported that a Carrefour store in Zhengzhou, capital of Henan province, was discovered in March 2010 selling instant noodles more than 10 years old. Another two products, a sauce and a bottled mineral water, were also found to have expired as an investigation was being carried out in the store over the instant noodles.

Similar cases were reportedly taking place in Shanghai in 2010. A local newspaper in Shanghai reported in May 2010 that a Carrefour store in the city was found selling expired sausages and dried pork. The three consumers involved in the case received a 400-yuan compensation. But they were reportedly assaulted and robbed soon after walking out of the store.

The number of such cases remains small but some economists say they can be largely attributed to Carrefour's operation model in China.

The company's stores in China take care of purchases on their own and the supervisor of each store has significant say in the selection of suppliers and prices, which leaves much room for commercial bribery, says Li Xuerong, a senior researcher on retail trading from China Investment Consulting.

Carrefour's revenue model in China, which relies heavily on the slotting fees that suppliers give, makes things worse, analysts say.

The case between Carrefour and Master Kong, the well-known instant noodle company in China, received a lot of attention at the end of 2010, when the former reportedly charged more than 20 kinds of fees to Master Kong for a place in the supermarket. The figure is reportedly much higher than those charged by Carrefour's competitor Walmart.

Carrefour entered the Chinese mainland in 1995, one year ahead of Walmart. But Carrefour's growth lagged behind for the first time in 2009, as Walmart opened 50 new stores in the Chinese mainland while it opened 20 new ones.

RT-Mart from Taiwan has also been overtaking Carrefour in recent years. RT-Mart outdid Carrefour in terms of gross revenue and became the top overseas retailer in China in 2009 with a total revenue of 40.4 billion yuan. RT-Mart reaped 334 million yuan in profits from each of its store in 2009, 100 million yuan more than the profits that each store of Carrefour made.

Li Guangdou, a Chinese analyst on brand competitiveness, says that Carrefour is adding to the burden of small and medium-sized enterprises (SMEs) in China by charging extremely high slotting fees, especially to the enterprises that are still in their start-up phase. This revenue model will seriously hamper the growth of SMEs, most of which are private.

Leading Chinese economist Lang Xianping also criticized Carrefour for setting "a bad example" for Chinese retailers by conducting a "very short-sighted revenue model".