Tesco to shut down four stores in China

Tesco, the world's third biggest supermarket chain, is planning to shut four supermarkets in China in a strategic adjustment, a move experts said reflects the sluggish performance of the retail market.

The retailer will close its two stores in Bengbu in East China's Anhui Province and Changshu in Jiangsu Province on August 31, one in Tieling in Northeast China's Liaoning Province on September 14 and another in Taizhou in Jiangsu Province on an undisclosed date, a PR executive from Tesco China, who declined to give her name, told the Global Times Thursday.

This move is part of a strategic adjustment in Tesco's sales network in China, she said.

But experts attributed the decision to the downturn in China's retail industry and the business mode of foreign retailers which is not suited to less developed cities.

The costs in the retail industry are expected to continue to rise in the next four years, given that the labor costs of stores increased 26 percent and rents jumped 10 percent in 2011, business news portal jrj.com said, citing an industry report on chain retail operation jointly issued by China Chain Store & Franchise Association and Deloitte & Touche on August 16.

Before opening stores in the less developed cities, foreign retailers should adapt their business mode according to the local conditions, Wang Xianqing, director of the Research Institute of Circulation Economy at Guangdong University of Business Studies, told the Global Times Thursday. "Otherwise, they could not compete with the local supermarkets which have already established a solid customer base."

"They should focus on the market in the more mature cities like Beijing and Shanghai," said Wang.

It is not the first time Tesco China has closed stores in less developed cities. In 2010, a Tesco supermarket in Yixing, Jiangsu Province was closed after three years of operation.

"The store was far from the city center and close to a similar local supermarket. We preferred to shop in the local one as the price and goods were similar," a local resident surnamed Yu in Yixing told the Global Times Thursday.

"Tesco's supermarket operation in China has not performed well since the company entered into China's retail industry, forcing it to close unprofitable stores," Fan Jie, a retail analyst from Adfaith Management Consulting, told the Global Times Thursday.

Besides facing difficulties in the retail sector, Tesco also suffered losses from its property business. Tesco China entered the commercial real estate market with its LifeSpace project in 2009 and planned to open 16 LifeSpace malls throughout the nation. However, it decided to pull out of the commercial real estate sector in July due to poor performance and high staff turnover.

Tesco entered China in 2004 and has built up a network of over 100 stores across provinces along the eastern seaboard, according to the company's website.