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__Strengths: __ // (1) //// Market leadership and active participation in the vibrant Chinese markets   // The company was ranked the second largest retail organization in China in Retail Asia Pacific top 500 awards. It enjoys strong market positions in the regions it operates in. In the Guangdong province CRE has 365 stores while its nearest competitor is A Best with 74 stores. In Jiangsu and Tianjin provinces CRE has 1,560 and 251 stores respectively. Changkelong operates 816 stores Jiangsu province and Wumart operates 50 stores in Tianjin province. In Shaanxi province while CRE operates 33 stores, Ren Ren Le operates just about 15 stores. The clear dominance of the company in the retail landscape in the regions it operates enables it to gain market share in a growing market.  // (2) //// Expansion to further establish a dominant market position   // By acquiring a supermarket with 81 stores, CRE is now positioned a s a national retailer. Additionally, the company entered an asset swap with the parent company. CRE exchanged its non-core textile and container business with hypermarket chain. As a result, the company expanded its retail operations and the hypermarket chain complemented the company's geographical coverage in the northern and central areas of mainland china. In retail, the competition for CRE is primarily from small players. Amid such an environment, establishing itself as a national player will provide significant competitive advantages of scale. The company will also have access to tap into several markets to drive revenue growth.  // <span style="font-family: 'Times New Roman',serif;">(3) //// <span style="font-family: 'Times New Roman',serif;">Multi-format Retail Model   // <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;">The company operates supermarkets, hypermarkets and convenience stores. Multi-format strategy enables the company to cater to varied preferences of the customers. Therefore, the company enjoys a large potential customer base. Additionally, smaller convenience formats can effectively participate in the bargaining power advantages that are possible due to hypermarket and supermarket stores. The company's multi-format strategy is also a competitive advantage, especially against the aggressive international players. Wal-Mart, Carrefour and Tesco operate single format of hypermarkets. <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;">Apart from the traditional formats, CRE is experimenting with new formats to further capture the appeal of diverse customers. The company has opened a new format store, Ole, which is a high-end supermarket. Additionally, CRE also is in the process of launching FUN shopping centers. These 40,000-60,000 square meter shopping malls aim at filling the gap in Chinese shopping center space, which is largely dominated by 20,000-30,000 square meter shopping malls or 100,000 square meter shopping malls. Such innovations will help the company to develop new customer base and tap into niche markets.CRE is pro-actively establishing itself as a multi-format retailer and also is aiming at differentiating itself from competitors based on the formats. The company's innovations could enable it to establish formats that appeal to the customers to gain competitive advantage. <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;"> __<span style="font-family: 'Times New Roman',serif;">Weaknesses: __ <span style="margin-left: 18.0pt; mso-list: l1 level1 lfo3; mso-para-margin-left: 0gd; text-align: justify; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(1) //// <span style="font-family: 'Times New Roman',serif;">Store productivity significantly lower than the competitors  //<span style="font-family: 'Times New Roman',serif;"> <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;">The company's stores generate lower average sales compared to the competitors. CRE's average sales per store in 2009 were CNY19.1 million ($2.8 million), much lower than the average of CNY107.3 million ($15.7 million). Carrefour Shanghai's store sales averaged CNY364 million ($53.4 million) and Chia Tai's averaged CNY198.7 million ($29.1 million). For hypermarkets format, CRE's average sales per store was CNY78 million ($11.4 million). Within the segment, this indicates low store productivity as the average sales per store was CNY163.4 ($24 million). Similarly, in the supermarket segment, while the competitor Jingkelong recorded average sales per store at CNY37.9 million ($5.6 million), CRE's average sales per supermarket was CNY9.4 million ($1.4 million). This indicates that the company's stores are underperforming the markets. This could lead to low profitability and as the other market players expand stores, it could lead to market share erosion. <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;"> <span style="margin-left: 18.0pt; mso-layout-grid-align: none; mso-list: l1 level1 lfo3; mso-para-margin-left: 0gd; text-align: justify; text-autospace: none; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(2) //// <span style="font-family: 'Times New Roman',serif;">Lower margins  // <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;">CRE has been witnessing low operating and net margins. The company's operating margin in FY2009 was 1.8%. This is lower than the sector average of 3.1%. CRE's competitors Wumart and Beijing Jingkelong enjoy operating margins as high as 6.3% and 5.4% respectively. Similarly, while CRE's net profit margin was 0.8% while that of Wumart's was 4.2% and Beijing Jingkelong's was 2.2%. Sector average net profit margin was 2%. This indicates that the company is facing higher costs compared to its peers, which is adversely impacting the profitability. <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;"> __<span style="font-family: 'Times New Roman',serif;">Opportunities: __ <span style="margin-left: 18.0pt; mso-list: l0 level1 lfo2; mso-para-margin-left: 0gd; text-align: justify; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(1) //// <span style="font-family: 'Times New Roman',serif;">China’s twelfth 5-year Plan  // <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;">The twelfth 5-year Plan shows that Central government will adopt policies to spur domestic consumption. For example, it will keep implementing policies to stimulate household consumption so as to allow domestic demand to play a bigger role in the country's economic growth. <span style="mso-layout-grid-align: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;"> <span style="margin-left: 18.0pt; mso-layout-grid-align: none; mso-list: l0 level1 lfo2; mso-para-margin-left: 0gd; text-align: justify; text-autospace: none; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(2) //// <span style="font-family: 'Times New Roman',serif;">Substantial growth in retail sector   // <span style="font-family: 'Times New Roman',serif;">The growth in the overall retail market will be driven in large part by a growing urban population with high disposable incomes and an interest in aspirational purchasing. According to socioeconomic forecasters Global Demographics, more than 30% of all urban households in China had an annual income above CNY40, 000 (US$5,848) in 2007. Earning power is likely to rise in tandem with growing urbanization. The UN predicts that the urban population will account for nearly 50% of the total by 2015. The National Bureau of Statistics (NBS) estimates that urban retail sales accounted for nearly 68% of total retail sales in 2009, down slightly on 2008. <span style="margin-left: 18.0pt; mso-para-margin-left: 0gd; text-align: justify; text-justify: inter-ideograph;"><span style="font-family: 'Times New Roman',serif;"> __<span style="font-family: 'Times New Roman',serif;">Threats: __ <span style="margin-left: 18.0pt; mso-list: l3 level1 lfo1; mso-para-margin-left: 0gd; text-align: justify; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(1) //// <span style="font-family: 'Times New Roman',serif;">Aggressive and expansionist strategy adopted by competitors   // <span style="font-family: 'Times New Roman',serif;">For example, France’s Carrefour pledging 25 new hypermarket openings annually, and the UK’s Tesco ensuring 10 new stores a year for the foreseeable future. US-based Wal-Mart has also planned more organic expansion in addition to the pursuit of further mergers and acquisitions. <span style="font-family: 'Times New Roman',serif;"> <span style="margin-left: 18.0pt; mso-list: l3 level1 lfo1; mso-para-margin-left: 0gd; text-align: justify; text-indent: -18.0pt; text-justify: inter-ideograph;">// <span style="font-family: 'Times New Roman',serif;">(2) //// <span style="font-family: 'Times New Roman',serif;">Operational cost increases as a result of rising minimum wages. // <span style="font-family: 'Times New Roman',serif; font-size: 12pt;">The minimum wages in China have been increasing indicating that the labor costs for the company could be adversely affected. Labor costs account for about 6% of the costs for the company. The minimum wage levels are rising in China impacting CRE's cost structure adversely as CRE pays 10% more than the minimum wages to its staff. The minimum wages increased by 20.3% in 2010 compared to 2008 levels. Among the Chinese provinces, Guangdong and Zhejiang provinces, where the company operates, have high minimum wages at CNY1,030 ($151) and RMB1,100 ($161.3) respectively. The two provinces have the highest wage rates in China after Shanghai. Rising minimum wages will increase the costs for the company further impacting the margins adversely.
 * <span style="font-family: 'Times New Roman',serif;">Retail Market SWOT Analysis **