RETAIL MARKET FIGHT TOO TOUGH FOR CARREFOUR

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Several British retailers are planning to enter the Russian market this year, after French retailer Carrefour has announced a pullout, with analysts pointing to a faulty market strategy.

In Russia for the long term. With these words, Carrefour opened a pair of hypermarkets – the last, in Moscow, just four months ago. Now they’re up for sale.

The french retailer says it can’t become a leader in the sector. It sees too little prospect for organic growth and too few acquisition opportunities. Viktoria Sokolova, Senior Analyst at Troika Dialog, thinks its strategy was flawed and came too late.

”Carrefour simply failed with its strategy to enter Russia. There is plenty of growth opportunities out there. Its nearest competitor, Auchan, has opened its 34th hypermarket in Russia, and continued its opening programme, even during the crisis times. Carefour came to Russia a little bit too late, and was talking, perhaps, not to the best operator in the market, without the distribution reach, to acquire them, as a means of an entry point.”

Russian consumers have continued to spend despite the crisis. Economic data suggests retail sales returned to growth in May. Chris Gilbert, head of the Russo-British Chamber of Commerce, says this reflects a different spending culture.

“Russians are natural spenders. In the west we tend to start thinking about our pensions in our thirties, in our private pensions, we are saving for thirty years in advance. In Russia you don’t see that mentality Russians would rather have things than money.”

He also says two British retailers are expected to move-in this year. Viktoria Sokolova believes they will face a tougher battle inestablishing a presence in the fod sector than the non-food sector.

“Entering the food segment you have to compete with players that have already established their presence and are strong domestic players. Entering the non-food segment, I think, gives you more opportunities in creating a chain that doesn’t have strong competition from the domestic side.”

The world’s largest retailer Wal-Mart has already spent more than five years in Russia with a team of 30 plotting an entry strategy. Market players are watching who’ll be the next to win or lose in this lucrative market.

MBA IDEA

• The divest strategy occurs when the business unit is exiting the market and seeking to withdraw or sell its share in the market.
• Divestitures may once have been looked upon as a symbol of failure, but no more. Increasingly, companies are selling non-core businesses to focus on core competencies, divesting business units that no longer fit strategic goals and selling under-performing assets to generate cash.
  
• In fact, divestitures are becoming a preferred way to create and preserve shareholder value: 73 percent of senior leaders at Fortune 1000 companies queried in a recent KPMG survey predicted that the annual number of corporate divestitures in the U.S. would rise in the next five years.