German retailer Metro pulls out from China on thin profits

German retailer Metro announced the end to its consumer electronics plan in China earlier this week. The withdrawal is believed to be due to fierce competition in China's electronics and appliances market.

Metro said it would be setting aside provisions for the withdrawal of its Media-Markt brand, Europe's largest chain of electronics stores, from China.

The group, which also run cash-and-carries, hypermarkets and department stores, did not reveal the amount of provisions, but analysts estimate it could be around 100 million euros, or around 134 million US dollars. The number is roughly equal to sales at its seven China Media-Markt stores for the first nine months of last year. Challenges such as price competition, and limited sales channels have made things tough in China for foreign retailers.

David Lung, national leader of China Consumer Biz & Transportation Industry, Deloitte, said, "Basically, the key challenges are like the rising of the rental prices, costs of manpower, and key competition from the network sales as well. China's market is mainly dominant by key market plays such as Gome and Suning. They had been focusing on building their sales network in the first and second tier cities."

Yin Hang said, "Data show that the competition in the Chinese home appliance market has become so fierce that stores owned by Sunning and Gome reached more than 3000. And they're planning to open more branches in China's third and fourth tier cities."

Media-Markt's exit follows that of US electronics retailer Best-Buy, both left China's market due to thin profit margins.

But according to a report issued by Deloittee, China's consumption sector is expected to see "fairly robust" growth in 2013, which could lure more retailers.

Analysts say sizzling competition will not keep foreign retailers out of the vastly lucrative Chinese market.

Industry insiders suggest that foreign retailers need to have a clear blueprint for business expansion and cost control in China. They say "going online" may be a good choice for newcomers.