A partnership between French retailer Auchan [AUCH.UL] and internet giant Alibaba risks pushing Carrefour further behind in China and could persuade its new boss to sell out of the country.
Alexandre Bompard took the helm at Carrefour, the world’s second-largest retailer behind Wal-Mart, in July and on Jan. 23 will unveil his turnaround plan for the French company, which issued a profit warning in August.
Bompard has to decide whether to stay or go in China, where Carrefour has spent years trying to fix a business whose sales still fell 5.4 percent in the third quarter amid fierce competition from local players and a buoyant online market.
Asked whether he had made a decision on China, the CEO told Reuters on the sidelines of an investment conference in Paris on Tuesday: “I will speak about it very soon.” Asked if this would be in the January presentation, he said: “Yes.”
“Until now, the only Western retailers to have successfully established themselves in this country have done so via partnerships with local retailers, like Auchan with Sun Art Retail,” Bryan Garnier analysts said in a research note.
“A combination of offline and online is also an option, as seen with the recent agreements between Wal-Mart and JD.com … and Auchan and Alibaba … Failing the rapid conclusion of such a partnership, a decision could be taken at Carrefour to sell assets in China,” they added.
On Monday, Alibaba announced a HK$22.4 billion ($2.9 billion) investment in a stake in Sun Art, China’s top hypermarket operator, in which Auchan also has the biggest stake.
Carrefour has been trying to reposition in China, where it makes 5 percent of group sales, having been too focused on large hypermarkets there. It has been expanding into e-commerce and convenience stores and opening logistics centers to cut costs.
Former CEO Georges Plassat repeatedly said Carrefour would stay in China and did not rule out a deal with a local partner, although nothing materialized.
RIVALS HAVE CHANGED TACTICS
Meanwhile, rivals have taken action.
In 2013, Britain’s Tesco gave up on cracking China alone, folding its unprofitable business there into a state run company as a minority partner.
In 2016, Wal-Mart sold its Chinese online grocery store in return for a stake in JD.com, China’s No. 2 e-commerce firm,
Auchan’s partnership with Alibaba risks further relegating Carrefour to the sidelines in China, analysts said.
“Sun Art is the largest grocery retailer in China and often considered as the one with the best operations and the best integration within the local culture,” said Bernstein analyst Bruno Monteyne.
“After a deal with Sun Art, there seems to be little incremental value in doing a deal with Carrefour for Alibaba. Potentially there is JD.com but they already have a deal with Wal-Mart,” he added.