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Bailian Group has grand growth vision
By Jiang Yan (China Business Weekly)
Updated: 2004-05-25 15:26

Shanghai-based Bailian Group, China's largest retailer by volume, is restructuring and plans to become the "Great Wal-Mart of China."

One of its four members, Shanghai No 1 Department Store, recently bought another member, Shanghai Huanlian Co Ltd, and renamed the firm Shanghai Bailian Group Co Ltd.

The entity has 5.9 billion yuan (US$712.5 million) in assets.

The merger, however, is subject to approval from Shanghai's municipal government, the State Assets Supervision and Administration Commission and the China Securities Regulatory Commission.

Both companies are State-owned enterprises listed in Shanghai. Trading of their stocks have been suspended.

"We will ask relevant government departments to speed up approval, and to allow the resumption of trading as early as possible," said Zhang Xinsheng, Bailian's president.

Securities analysts expect about 1.1 billion new shares will be traded beginning next month.

This is the first time two companies listed in China's securities market have attempted to merge.

If approved, the newly created company will have 14 department stores and three shopping malls. The entities' annual sales last year were worth 4.16 billion yuan (US$504.4 million). They posted 220 million yuan (US$26.57 million) in combined profit.

Wang Zongnan, the group's chairman, said the new company's future development will focus on three things: Forming giant department stores catering to urban residents' tastes, expanding large shopping malls and establishing chain stores.

The group will expand from Shanghai, in East China, to other parts of the country.

It now has about 5,000 outlets, with annual sales worth 92 billion yuan (US$11 billion) last year, in China.

The group plans to open 1,000 outlets this year, and expects to achieve sales of 100 billion yuan (US$12 billion).

The firm is doing everything possible to swamp encroaching foreign giants such as Wal-Mart and Carrefour.

However, the merger is only the beginning of the group's restructuring, Zhang said.

The next step, he added, is teaming with foreign investors and, ultimately, listing the group.

That, Zhang admitted, will take at least three years.

The plan, however, might not be necessary and is difficult to realize, suggested Wang Yao, director of the information centre under the China General Chamber of Commerce.

Listing the group as one company will make it harder to avoid risks, he suggested.

"It is safer to have many members, to share the risks, rather than make one giant take all." Wang said.

The group's involvement in many sectors could become a major obstacle, he added.

"It is wise for these two members to merge, but will be difficult for them to take in the other two," he said, "because they involve different categories of businesses."

The group's two other members, Shanghai Friendship Co Ltd and Shanghai Materials and Logistics Co Ltd, operate real estate development and logistics businesses.

"Lack of management expertise will be another problem," Wang Yao said.

The group's president and chairman are both experienced in managing supermarkets, but they are not familiar with the day-to-day operations of department stores, let alone other far-related businesses, he added.

"The biggest problem is with whom will the group compete," he said.

Bailian Group is not competing on an equal footing with foreign giants, such as Wal-Mart and Carrefour, who focus their businesses on retailing, he added.

Wal-Mart, the world's largest retailer, reported global sales worth US$258 billion last year.

"Being bigger does not mean the entity is stronger," he said. "What matters is the group's competitiveness in its core business."

According to recent media reports, Bailian Group is developing supermarkets and department stores as its core business. The firm expects sales revenues and profits from those businesses to make up 75 per cent and 80 per cent, respectively, of the company's overall figures until 2010.

Retail sales in China, the largest market in Asia after Japan, are expected to exceed US$600 billion this year.

The group's chairman acknowledged foreign giants' have immense financial and management firepower, but he remained confident about his group's outlook.

"They surely have more financial clout, better management and more experience. But anyone who is coming to China will have to grapple with local preferences," he said.

Bailian Group's superior knowledge of local consumers' habits should cement its leading role in China's retail arena, he added.

China will open its retail sector before year's end, in line with the country's World Trade Organization commitments.

Statistics indicate 70 per cent of the world's top 50 retailers have entered China. They are posing a great challenge to domestic players, although they currently occupy between 5 and 8 per cent of the market.

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