A government-initiated program to establish large retail groups
to compete with the foreign mega-store operators like Wal-Mart from
the United States and Carrefour of France, is seen to be producing
results in the highly competitive Shanghai marketplace.?
The lessons learned by these domestic retail conglomerates in
Shanghai, led by Brilliance Group, which owns a chain of stores
under names such as Hualian and YiBai, will be incorporated into
operational models that can be applied nationwide, retail experts
and economists said.
Although large foreign chains continue to increase their
presence in Shanghai, domestic brands are fast catching up, as
indicated by new store openings and revenues, the experts
said.?
With more than 7,000 outlets covering 25 cities, Brilliance saw
a revenue increase of almost 8.5 billion yuan in 2006, up 43
percent over a year earlier.
In 2003, four local retailers, Shanghai YiBai (Group) Co Ltd,
Hualian (Group) Co Ltd, Shanghai Friendship (Group) Co Ltd, and
Shanghai Materials (Group) Corp, merged into Brilliance Group to
compete with the muscle of incoming foreign companies.
Wang Liang, head of the Shanghai Current Economics Research
Institute attributed Brilliance Group's speedy expansion largely to
its concentration of assets, capital and network. He said the
combination cut costs of stock, management and delivery that
improved profits.
Local companies also boast the advantage of good supply chains.
Suppliers have more trust in large State-owned enterprises such as
Brilliance Group, Wang said, noting that a stable chain of
suppliers is already established for these large local
retailers.
"Suppliers are more willing to sustain this chain than providing
goods to newcomers with an unforeseen future," he said.
Yet foreign companies' financial support wins them favor from
Chinese suppliers. Wal-Mart's bankroll enables it to pay 60 percent
of the total purchase price to suppliers immediately.
"It brings them more suppliers and a relatively lower price for
goods."
In contrast, many Chinese supermarkets, following the example of
Carrefour, pay suppliers once every six months.
"It shifts the risk to suppliers and puts them in an
embarrassing shortage of cash flow. That may harm their supply
chain."
Foreign companies also gained a favorable foothold through
mergers. Wal-Mart's acquisition of a 35 percent stake in Trust Mart
in February this year was a classic example.
"If Wal-Mart buys Trust-Mart completely, it gets not only the
stores, but also its supply chain and carefully chosen network of
locations," Wang said. He predicted that the competition would no
longer exist among mere retailers, but among the entire system of
manufacturers, suppliers and retailers.
"In few years, foreign retailers will pose a greater threat to
local ones", he said.
While Wal-Mart and other foreign rivals are busy localizing,
Brilliance Group tends to optimize its management.
The 2006 annual report of Brilliance Group showed its emphasis
on management system transformation, gradually pooling stocks of
foreign commodities and shifting key operational tasks to improve
every store's performance.
It plans to withdraw from places where operational conditions
are unsatisfactory, and intensify in strong locations, Wang
confirmed.
Wal-Mart, however, will insist on its tried and tested concepts.
"We will try to provide better prices, quality of goods and other
services," said Paul Hu, spokesman for Wal-Mart's Shanghai
office.
"Markets like Wal-Mart are larger in size and more complete in
the variety of goods," said Zhou Shu, who prefers to go to stores
operated by foreign companies.
Yin Jingmei, 23, who chooses to go to local supermarkets, said
"it is convenient to go there and goods are cheaper than in the
markets run by foreign companies".
"But foreign invested big malls have more discounts and a more
complete variety of goods. Compared to local supermarkets, they
have more exporting goods," she adds.
(China Daily July 6, 2007)
