Last week, the world’s second largest retailer, France-based Carrefour issued its fourth profit warning saying it expected 2011 operating profit to fall by up to 20%, compared with 15% stated previously for its third profit warning in August.

Last week, the world’s second largest retailer, France-based Carrefour issued its fourth profit warning saying it expected 2011 operating profit to fall by up to 20%, compared with 15% stated previously for its third profit warning in August.

The announcement coincided with the release of the retailer’s third-quarter results – a 0.3% gain in gross sales was made during the period to E22.8bn (£20.2bn) at current exchange rates.

Carrefour has struggled in recent times, particularly in France, which accounts for about 40% of its worldwide sales. Indeed, sales across the market were down 1.9%during the third quarter.

The problem lies in the retailer’s hypermarket banner, which accounts for half of its French sales, where the giant reported a 4.6% fall in like-for-like sales.

Carrefour has been slow to react to shifts in the consumer market that has seen consumers avoid the out-of-town shopping trip to large-scale hypermarkets.

The average shopper has developed a desire for convenient shopping via smaller stores and online. Carrefour has also failed to stem the flow of customers from its core channel, while its hypermarkets are suffering from a high-price perception among the French public.

An obstacle to tackling this view has been the admission by Carrefour itself that prices in its stores are actually 2% to 3% higher than at rival chains.

Further damaging to Carrefour’s price perception is the remodelling of its existing hypermarkets under the Carrefour Planet concept. While the ‘destination shopping’ format is being used as a means to turn around the business, it is unintentionally creating a premium image for the retailer.

Three months ago, at the release of Carrefour’s half-year results, the company made a resolution to tackle these flaws across the French hypermarket division. However, it is still too early to tell whether the group has made any headway.

The future looks uncertain for the French giant. Currently, the retailer is backing Carrefour Planet to be its lifeline, but considering that a Carrefour Planet store is twice as expensive to construct as the retailer’s typical hypermarket, the uplift in sales generated at the new stores are not enough to justify their continued roll-out.

It would not be surprising to see a slowdown in store conversion rates, and a look to foreign operations for capital to plough into Carrefour’s failing domestic division.

  • Louise Howarth, Retail analyst, Planet Retail. For more information contact us on:

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