Other retailers went through a wave of mergers and acquisitions. Last month,
Wumart Stores Inc, the largest retail chain in Beijing, bought MerryMart, the
fourth-largest retailer by size in the Beijing area to consolidate its
leadership in the city. Gome, the nation's largest home appliance retailer,
bought China Paradise, the third largest player in the sector, after US-based
Best Buy acquired Jiangsu Five Star Appliance in May.
Local retailers expect the consolidation to reduce costs and fierce
competition, but industry insiders warn the craze for size can be dangerous.
"Local companies should pay more attention to the improvement of overall
efficiency and management rather than just focusing on size during expansion,"
says Celia Shen, senior manager of consultant BearingPoint, adding that some
merger cases have already fallen into the trap of chasing size rather than
efficiency.
For instance, in early 2005, Shanghai Brilliance (Group) Co bought 60 per
cent of Dalian-based Dashang Group Co Ltd, the second largest player in the
sector, hoping to create a local retail giant. Despite the formidable size, the
alliance lasted only lasted one and half years. Last month, Brilliance decided
to pull out its investment in the joint venture after struggling to integrate
the companies' businesses.
"Local retailers, especially medium-sized ones, could focus on regional
markets or even some niche markets, try to establish their dominance in such
markets and thus strengthen their competitiveness," says Huang Guoxiong, a
professor of economics at Renmin University in Beijing.
Some local retailers like Beijing-based Wumart have already made that part of
their growth strategy. The Beijing-based retailer had 12 hypermarkets as well as
47 supermarkets and 436 mini-marts at the end of 2005, most of which are located
in the capital and Tianjin.
"Wherever we go, we try to be the leading player in the local market, and
have the largest number of stores," says Xu Ying, Wumart's director of finance.
"The strategy allows us to apply more management tools such as IT systems and
reduce costs in the regional market."
Wumart bought Yinchuan Xinhua Co in April as part of its expansion outside
Beijing. Yinchuan Xinhua, with four department stores and 23 supermarkets in
Yinchuan, owns the largest market share in the capital city of the Ningxia Hui
Autonomous Region.
(China Daily 09/11/2006 page1)
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