B&Q'S Acquisition Of B&Q From Wuming Group, Which Is Active In M & A Activities

In December 22nd, Kingfisher announced that it would sell 140 million of its 70% stake in B&Q China (B&Q) to chain store Wumart group.

"When the economy is growing rapidly, people often do not have much incentive to create value through integration, but when the economy slows down, we need to create a more efficient platform through integration."

In an exclusive interview, Rothschild Sachak, global director of the consumer industry at Rothschild Global Financial Advisory, said.

Rothschild's equity market consultant was the exclusive financial advisor of Wumart group in the paction.

For China's retail industry, Sachak said frankly that more industry consolidation activities will be seen. Foreign retail businesses are faced with the problem of finding a sustainable profit model for themselves, while local retail businesses are mostly scattered regional players, which need to be integrated to improve efficiency.

Not acclimatized

Kingfisher is not the first foreign retail enterprise to "concede" in the Chinese market.

Last March, Europe's largest home appliance store, Wan De City, withdrew from China. In August last year, TESCO, the largest retailer in the UK, sold its 80% stake in 131 stores in mainland China to Huarun venture in the form of a joint venture.

There are many reasons for the development of foreign retail enterprises in China. One is that the products offered are not suitable for Chinese consumers. On the other hand, they lack experience in managing retail enterprises in China.

Sachak points out.

As China's economic growth slows down, the retail industry faces greater challenges as a whole.

According to the data of the National Bureau of statistics and the Feng's group consumer report, in 2013, the total retail sales of social consumer goods increased by 13.1% in nominal terms compared with the previous year, the lowest since 2007, with a real increase of only 11.5%.

In the first half of this year, the nominal growth rate of total retail sales of social consumer goods further dropped to 12.1%.

The analysis report on the operation of China's chain retail enterprises 2013-2014 (hereinafter referred to as the "report") shows that in 2013, the sales volume of China's top 100 retailers exceeded 2 trillion yuan, but the growth rate was only 9.9% for the first time, and the total retail sales accounted for 10.8% of the total retail sales of social consumer goods from 10.8% in 2009 to 8.7%.

It is estimated that the growth rate of total retail sales of consumer goods will also drop by 0.7 percentage points in 2014.

For the Cui Feng Group, the crux of B&Q's development in China is that it has not been able to find a sustainable profit model. At the same time, there is no manager with local operation experience. Before selling to Wumai, B&Q's Chinese business has been losing 7 consecutive years, and its number of stores has been reduced from 70 in the peak period to 39.

This sticking point is also a common failing of other failure peers.

"Many enterprises are doing well in the 2 years when they enter China, but then they will be surpassed by local retailers."

Sachak says.

According to the report, in 2013, the top ten Chinese chain top 100 enterprises were only listed in the list of big RT Mart (Cannes investment in China), WAL-MART and Parkson, among which Baisheng was the only one with a negative annual sales growth.

"Foreign retailers face competition from Chinese competitors, and the latter clearly understand the needs of Chinese consumers."

Sachak frankly, on the other hand, for many problems that need to be solved in the Chinese market, Chinese people know more about how to deal with them than foreigners.

A set of data provided by the report shows that the development mode of China's retail industry is shifting from the extension of horse racing enclosure to the rapid acquisition of mature resources.

In 2013, the M & a market of China's retail industry has begun to flourish. The volume of M & A pactions in traditional retail business has increased by more than 44% over the same period, and the total amount of M & A pactions is about 4 times that of 2012.

"When China's economic growth starts to slow down, foreign retailers may need to consider whether they will continue to operate in China in the existing way, but for any large multinational company, it is impossible to completely ignore the market of China's 1 billion 300 million population, which is a critical point."

Sachak frankly speaking.

How to find it

The proper mode of development is once again a problem that foreign retailers need to think about.

Sachak believes that, in the current environment, not only is the retail industry, but the growth rate of foreign enterprises in China is likely to slow down substantially, reduce investment in China, or seek local partners to continue to develop.

On the other side of the market, although Chinese retail businesses have the advantage of understanding consumers and being familiar with the market, they still need time to take the market.

"China's retail enterprises are mostly regional and relatively dispersed. From the food retail industry, there is still a long way from the mature market, and there are still many needs to learn from foreign competitors."

Sachak said that the development of many Chinese retail enterprises is still concentrated in the local area, and the target of mergers and acquisitions will also be dominated by foreign capital in China.

For foreign capital, it is more and more difficult to win in competition with Chinese competitors.

Sachak believes that finding a suitable Chinese partner is a better development mode for foreign retail enterprises in the face of the great challenges facing the Chinese market and the great challenges ahead.