As Aldi launches in China, Carrefour is scaling back. The French retail giant is the latest in a long line of big international retailers to dial down their presence in the Chinese market.

It followed in the footsteps of Tesco and Kingfisher, for instance, as it offloaded an 80% stake in its China business to local player

Carrefour has operated in China since 1995, but almost a quarter of a century on it was only making EBITDA of €66m on sales of €3.6bn.

So why do so many international retailers fail to make it in China? It is typically seen as a go-to market where a rapidly growing middle class would be eager to splash out with world-renowned retailers.

“There was tendency, perhaps, to think that China represented ‘easy money’”

Maybe that perception was part of the problem. There was tendency, perhaps, to think that China represented ‘easy money’.

But frequently there were executional failures, whether on the choice of locations or, as was the case with Marks & Spencer, on product pricing that was out of kilter with the market.

Such shortcomings might have been addressed over time, had it not been for one other factor – the repercussions of which are playing out beyond China. And that is the growth of Chinese retail and online giants such as Alibaba.

Working together

The rapid development of new technology and its embrace by consumers have enabled a new generation of Chinese businesses to emerge, which are in some ways more advanced than the Western giants that once led the way. is one example. Few in the UK may be familiar with it but the business, in which Alibaba has a 20% stake, has almost 9,000 stores in China – not far short of the 12,000 Carrefour has in 30 countries. As well as its bricks-and-mortar presence, it controls China’s third-largest B2C ecommere platform.

“Partnerships represent a far better option than slogging on alone or abandoning a big market altogether”

It demonstrates how rapidly the landscape has changed. Its parent Suning Holdings was founded only five years before Carrefour’s arrival in China and now generates sales in excess of $80bn.

By maintaining a stake in its Chinese business, Carrefour retains an interest in the market but can benefit from the knowledge and technological expertise of Suning. Tesco did the same when it put its Chinese business into a joint venture.

Partnerships have become increasingly common in retail, in technology as well as international operations. While they may mean sharing upside, they represent a far better option than slogging on alone or abandoning a big market altogether.

It’s a route that’s been taken by Walmart, which formed a strategic alliance in China with in 2016. Last year, the pair built on their relationship with a $500m investment in online grocery delivery specialist Dada-JD Daojia.

Success starts at home

While Chinese retailers have built a reputation for technological excellence and multichannel prowess, there are overseas retailers apparently doing well in the country by deploying their particular business model.

Zara owner Inditex is one. The Spanish fashion powerhouse now has 589 branches there, making it the group’s second-biggest market by store numbers. Last year, it made a profit of €364m.

Aldi looks as if it has done its homework in China. It has sold on Alibaba’s Tmall marketplace for a couple of years to learn about shoppers and test the market.

“Retailers that are not doing well at home are unlikely to do well elsewhere – even in a growing market such as China”

Aldi’s first two stores, both in Shanghai, have been designed as pilots that can be “customised and tailored” for the market. In acknowledgement of the rate of technological change in China, the stores include digital options that do not feature in the UK – a WeChat scan-and-go queue-busting option and the ability, also through WeChat, to offer immediate delivery within 3km of the store.

Unlike Carrefour, which is having to focus on its domestic market where it has come under pressure, or Tesco, which was also ailing in the UK when it decided to quit China, Aldi has been doing consistently well in its core German market.

It’s done so, like the newer names in China, by staying intimately connected to its customers. Retailers that are not doing well at home are unlikely to do well elsewhere – even in a growing market such as China.