Ben Cavender, an analyst at the Shanghai-based China Market Research, said Post Mart is losing money as it cannot sell large volume products. Most of the products it sells have low margins and high logistics and labor costs, he said.

He said to attract rural consumers who have shopped largely at local markets, rather than physical stores, it is important to introduce new brands with different package sizes.

Cavender said Post Mart still has opportunities but it has to be patient and invest in right areas while keeping its stores close enough to save costs. Rural retail channels still remain underdeveloped, creating opportunities for retail brands such as Post Mart.

With first- and second-tier Chinese cities saturated, smaller centers are set to be the next battlefield for international retailers, such as Wal-mart and Carrefour SA.

"Even local retailers haven't touched these areas," Jason Yu, general manager of Kantar Worldpanel, a global researcher of shopping habits, said.

He cited insufficient purchasing power as a major hurdle because most of the rural residents are elderly people, women or children as others have migrated to the cities for work.

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