Auchan partnership with Alibaba puts pressure on giant French retailer seeking to reverse sales fall

A partnership between French retailer Auchan and internet giant Alibaba could push Carrefour further behind in China and even persuade its new boss to pull out of the country.

Alexandre Bompard took the helm at Carrefour, the world's second-largest retailer behind

Walmart, in July. On Jan 23, he will unveil his turnaround plan for the French company, which issued a profit warning in August.

Bompard has to decide whether or not to stay in China, where Carrefour has spent years trying to fix a business whose sales still fell by 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 Nov 21: "I will speak about it very soon." He confirmed that the subject would be included in his January presentation.

"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," analysts at Bryan, Garnier & Co said in a research note.

"A combination of offline and online is also an option, as seen with the recent agreements between Walmart 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 Nov 20, Alibaba announced a HK$22.4 billion ($2.9 billion; 2.4 billion euros; ￡2.2 billion) investment for a stake in Sun Art, China's top hypermarket operator, in which Auchan 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. 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.

Brick-and-mortar retailers have taken action to forge alliances with e-commerce players.

Among international retailers, Walmart and Carrefour have begun to see market share recovery on a quarterly basis, though they are still closing nonperforming stores and are reformatting their existing stores to be more competitive and appealing to shoppers, according to Kantar Worldpanel China.

They are introducing new stores that are 30 to 50 percent smaller than the old ones to make their merchandise more accessible and reduce the sales area for nonfood, according to the report.

In June, Carrefour opened its first Easy Carrefour store in Wuxi, and this is the first time the retailer introduced the smaller-format store outside its home base in Shanghai.

More recently, it launched its own digital wallet, Carrefour Pay, together with UnionPay to facilitate more mobile payments in store.

"Carrefour is seeing more recovery lately, as they are making efforts to move from (a) hypermarket-only model to a multiformat strategy by opening more Easy Carrefour and launching compact hypermarkets," says Jason Yu, general manager of Kantar Worldpanel.

However, on e-commerce, Walmart and RT-Mart are likely to get the upper hand with the JD and Alibaba alliance," he says.

Agencies contributed to this story.

(China Daily European Weekly 12/01/2017 page29)