Rising costs, growing impact of e-commerce pressure overseas firms

Foreign retailers in China are changing their strategy in the nation amid fierce competition, rising costs and consumers' changing demand, Ministry of Commerce spokesman Shen Danyang said on Thursday.

Both foreign retailers and their local counterparts are facing heated competition as China's retail market keeps expanding. The recent closures and mergers among foreign retailers, especially in the home appliance and building materials retail sectors, are the result of "normal" competition, Shen told a news briefing.

Last year, the world's largest convenience store retailer, 7-Eleven, confirmed store closures in Guangzhou, capital of Guangdong province.

Even the world's largest retail giant by sales, Wal-Mart Stores Inc, closed two stores in Wuxi and Shenzhen - the location of its China headquarters - in April after a business appraisal.

Home Depot Inc closed all seven of its remaining stores in China last September after years of financial losses, while Best Buy Co closed its nine outlets in the country in early 2011, after having discovered that its Western business model didn't work well in China.

In addition to store closures, other foreign retailers have slowed their expansion in the nation.

Wal-Mart said it plans to open around 33 stores a year. In past years the figure was around 50. "Store location, company strategy and business performance combine to create a decisive factor regarding the adjustment of stores," said Li Ling, senior director of public relations at Wal-Mart China.

Shen said: "After a period of rapid expansion, some foreign retailers have entered a phase of restructuring and slowed their pace.

"But some are still successful and investing more in logistics, distribution networks and after-sales services, along with opening more outlets, which is also the result of competition."

He added that foreign retailers in China, on the whole, have good operations and a total of 321 foreign-funded enterprises were established in 2012 involving $1.91 billion in direct investment, up 5.46 percent year-on-year.

Overall foreign direct investment in China declined 3.7 percent year-on-year in 2012.

Although some traditional retailers' business slowed, others have maintained or increased their growth rate.

France's Carrefour SA, the world's second-largest retailer by revenue, said it will retain an annual growth rate of around 20 to 25 new outlets in China.