B&Q acquires PriceSmart's 5 outlets
Home furnishing retailer B&Q Group announced recently that it has acquired five outlets from the heavily indebted PriceSmart in China for 6.95 million pound (US$12.51 million), another case of a foreign giant swallowing its local counterparts.
The five stores, once owned by a local logistics firm, Nuoheng Holding Corp, will be re-furbished into B&Q hypermarkets. They are located in Heilongjiang, Shandong, and Sichuan provinces and Tianjin Municipality.
Hu Lifeng, UK-based B&Q's spokeswoman, said the five stores will start business next year, which will bring the firm's chain in China up to 26.
"B&Q is focusing on the market in North, West and Northeast China, and the stores we acquired are at the right location for the company's further expansion in the country," Hu said.
By the end of 2009, the firm aims to open 80 stores in China, she added, although declining to reveal what methods the firm will take.
B&Q opened its first DIY (do-it-yourself) store in China in 1999 and the group's Chinese operations notched up sales of 131 million pounds (US$235.8 million) last year.
On the other side of the deal, the fund injected will somewhat help PriceSmart, a membership chain, to shake off its heavy debt burdens.
Earlier in July, PriceSmart revealed the firm was seeking co-operations with large retailers from both home and abroad to resolve the fund shortage.
A senior official with PriceSmart said the membership store can only succeed in large cities, such as Beijing and Shanghai, and that the stores in the secondary cities are in poor situation, according to a report from New Beijing.
"We are carrying out evaluations of these stores, and more capital will be introduced for them," revealed an anonymous company official.
Wang Yao, director of the information department under the China General Chamber of Commerce, pointed out that it is too fast expansion that has brought failure to PriceSmart.
Wang said that PriceSmart China is not foreign-funded as people think.
Nuoheng Holding Corp, a private company, obtained a franchise authorization from US-based PriceSmart to use the brand in China, but PriceSmart China's operation model and management structure differ from the US conglomerate, he said.
Nuoheng used this method to enjoy preferential policies offered to overseas retailers in local markets.
The fast business growth, in line with Nuoheng's principles of high speed, high standards and low costs, was based on a large amount of banking loans and outstanding payments to goods suppliers and store furnishing operators.
Entering China in 1997, the first PriceSmart membership shop started in Beijing and attracted a group of high-end consumers.
Based on its primary success, PriceSmart opened four more membership outlets in Beijing, Kunming, capital of Southwest China's Yunnan Province, and Chengdu, capital of Sichuan Province.
By the end of last year, the chain retailer has launched over 10 membership stores.
Earlier last month, media reported a local retailing giant, Shanghai Bailian Group will inject funds into PriceSmart, according to a Beijing Times report.
But the firm ruled out the rumour, saying, the group has not made such a decision.
"It is possible that certain enterprises affiliated to Bailian have discussed such plans with PriceSmart," said Zhu Jialiu, general manager of the group's supermarket department.
Wang said the deal indicates more foreign retailing giants will speed up their paces to acquire medium-sized local stores in a bid to win bigger market share in the coming six months.
"The market structure will be re-built starting from the end of this year, when the retailing sector is fully opened to foreign investors, in line with China's commitment to the World Trade Organization.
"Those small- and medium-sized local enterprises will be on the verge of being merged.
"Since the second half of next year, fierce competitions among foreign firms will start," Wang predicted.