Chinese retailer Suning.com has signed an agreement with Carrefour Group to buy an 80% equity interest in the French retailer’s China business as a slew of international retailers adjust their strategies in the country.
Suning will pay RMB 4.8 billion (around $699 million) for the deal which values Carrefour China at RMB 6.0 billion, according to a company statement released on Sunday. Carrefour Group will retain a 20% stake in the business and two seats out of seven on Carrefour China’s supervisory board. The transaction is pending approval from the Chinese regulators and is expected to close by the end of this year, the statement said.
As a major appliance seller and e-commerce platform, Suning has been pushing its offline expansion to various segments including convenience stores, supermarkets, and department stores. The omnichannel retailer, which operates a network containing upwards of 8,881 stores in more than 700 cities, aims for 15,000 offline stores this year.
The current acquisition helps the company diversify into supermarkets while tapping to new areas like consumer goods and fresh produce. The move follows Suning’s February acquisition of 37 Wanda department stores from Chinese conglomerate Wanda Group.
However, integrating Carrefour China, which operates 210 hypermarkets and 24 convenience stores, into Suning’s existing businesses could pose a challenge due to both the massive size and scale of the business, and the fact that it is still loss-making, Zhuang Shuai, founder of Beijing-based consulting firm Bailian, told TechNode.
Carrefour China’s revenue declined 7.67% year-on-year to RMB 29.96 billion in 2018. Its net loss is RMB 578 million, down from RMB 1.09 billion 2017.
Zhuang added that differing company cultures and operating models may make the integration more difficult.
Facing rising competition from domestic pure play retailers and internet giants’ offline expansion, Carrefour is the latest entry to a lengthening list of Western retailers that are retreating from the Chinese market. Tesco and Walmart have sold stakes to domestic partners, and German wholesaler Metro is reportedly looking to sell its China unit.
Carrefour China has been seeking to partner with Tencent to integrate WeChat mini-programs and scan-and-pay services in an effort to lift profits and sales. In January 2018, it has entered a preliminary talk with Tencent and Yonghui, a Tencent-backed retailer specializing in fresh food and small stores, for a minority stake in the China operation.
Following Suning’s acquisition, Yonghui announced the termination of the deal on Monday. Tencent declined to comment on the matter, but The New York Times reported that Carrefour China’s strategic business partnership with Tencent remains in place.
Zhuang said that the challenges of size and profitability were likely obstacles that barred Tencent and Yonghui from moving ahead with the deal. The acquisition from Suning, an Alibaba-backed company, will bring Carrefour closer to Alibaba’s ecosystem, he added.