International retail: Russia, Japan

I've been ignoring developments outside the US a bit lately. There's been enough action here recently to keep us all focused.

But for retailers, the opportunities for growth may look better overseas. Carrefour is apparently in negotiations to buy one of Russia's leading grocery chains:

French retail giant Carrefour is negotiating to buy Russian supermarket chain Sedmoi Kontinent for 1.25 billion dollars (938 million euros), the daily Kommersant reported.

The paper, quoting an unnamed senior Western investment banker close to the talks, said Carrefour would formally submit its bid on May 15 under the terms of a preliminary agreement signed in April.

The paper said the French retailer would pay 1.25 billion dollars to acquire 75 percent of Sedmoi Kontinent and 100 percent of Mkapital, the firm managing the real estate holdings of the Russian supermarket chain.

Russia could be an interesting market to watch, since my first thought when I saw this article was, "Hey, didn't I see something a few weeks ago about Walmart planning to enter Russia?" As a matter of fact, I had:

Reports of out Russia suggest Wal-Mart Stores Inc. may be in negotiations to buy a controlling stake in one of the country's leading “hypermarket” big box retailers. An article in the Kommersant newspaper said the ownership stake in Lenta could approach 51%. This follows similar reports in July 2008.

As the quote indicates, Walmart has been looking at Russia for a while. Presumably they'll take the leap soon, especially now that Carrefour has gone first.

Meanwhile, in Japan, where Walmart, Tesco, and Metro are established, the Wall Street Journal thinks the action is going to be defensive consolidation by local chains, especially by the biggest of the locals:

Still, any efforts to push their presence out into the regions by Wal-Mart, Tesco or Metro may put them into competition with domestic heavyweight and serial acquirer Aeon.

"Aeon's strategy has been one of looking at M&A as a platform for sales volume expansion," says Larke. "It's seen what the large overseas competition have done and come to the conclusion that sales volume is the way to go."

In the past three years it - or its affiliates - have on average conducted a merger, private placement or capital tie-up with another retailer every two and a half months, according to data from CapitalIQ.

Carrefour pulled out of Japan a few years ago, and Walmart has struggled there.

Barbie in Shanghai

Mattel is opening a Barbie store in Shanghai, according to People's Daily:

World's premier toy company Mattel is expected to open its first Barbie flagship store in Shanghai next month in Shanghai, the country's economic hub, in hope of a market expansion in China when its global sales contracted.

The 3,500 square meter, six-floor Barbie flagship store along Shanghai's trendy Huaihai Road, is expected to open on March 7 to celebrate the brand's 50th anniversary, said Julia Jensen, Mattel's vice president of Public Relation and Communication International said in an e-mail to Xinhua.

A number of major brands and retailers seem to be looking at international expansion as a way of growing through the hard times. Mattel's sales in 2008 were down 1%, but Q4 was down 11%. Mattel has been in China for seven years now, according to the article, but this is their first major store.

The competition doesn't sound frightened:

"The market positioning of Barbie is quite different from Chinese toy brands. I don't think the flagship store would have much impact on the sales of Chinese toys," said Xie Min, the business department head of Huaihai Youth Articles Store, several hundred meters away from the pink Barbie flagship.

"China's toy market has long seen foreign brands including Winnie the Pooh and Mickey. Compared with them, Barbie is still less competitive in terms of its franchisers and product chain," says Xie.

Walmart and Carrefour expanding in South America

Walmart announced plans to buy one of Chile's largest grocery chains:

Wal-Mart spokesman Kevin Gardner said from the company's headquarters at Bentonville, Ark., that D&S operates 185 stores in Chile and is a "significant" player in the country's grocery-retail sector.

Walmart is currently operating in Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Puerto Rico.

Carrefour, meanwhile, is planning to expand in Brazil, with expectations that Brazil will become their second-biggest market (it's currently third, behind France and Spain).

Carrefour SA, Europe’s biggest retailer, plans to open a many as four new stores in Brazil in the first quarter even as growth slows in Latin America’s biggest economy.

Carrefour sees growth opportunities in the southern part of Brazil and is interested in buying other companies, said Pedro Daniel Magalhaes, chief financial officer of Grupo Carrefour Brasil, in an interview with Bloomberg Television in Sao Paulo.

Looks like Woolies might be broken up

Their are some buyers who want to take over Woolworths in its entirety, but it sounds like most bidders are interested in buying up individual locations.

Supermarket groups including Asda and Iceland have said they would be interested in individual stores. Tesco is understood to be interested in up to 20 Woolworths shops. Other retailers such as Poundland, Primark and Wilkinson are also probable contenders to acquire sites.

Deloitte (the administrator of the bankruptcy) says there are some interested in the whole enchilada, but one potential bidder says they see no hope for such a deal:

Iceland chief executive Malcolm Walker, who looked into buying Woolworths earlier this year, has cancelled himself out of the race for the retailer. "To run Woolies as Woolies, which is what we wanted to do, is now a lost opportunity," he said.

Best Buy to continue with European expansion

Best Buy says it has no plans to cut back on its previously announced expansion in Europe, in partnership with Britain's Carphone Warehouse.

Although Best Buy warned of a "seismic shift" in consumer behaviour, Best Buy Europe chief executive Roger Taylor said there would be "no effect at all" on the duo's plans to launch four or five Best Buy Europe stores next year and 100 across Europe by 2012.

"Best Buy has a strong balance sheet and no debt," said Taylor, who is also finance director of Carphone Warehouse. "We don't need an excessive amount of capital in terms of our plans next year."

What is Woolies worth? A buck and a half

Actually one pound, but I don't know how to insert a pound symbol in Blogger..

One pound is what Britain's Woolworth's chain will reportedly be sold for, although the buyer, Hilco, may be balking at taking on the pension shortage of $150mil.

Woolworth's was in trouble before the economy soured (I posted this item back in June), and there has been takeover talk for a while. Reportedly there was a bid to take it over for 50 million pounds in August. Bet they wish they had taken that offer.

Any deal will also require the approval of the pick and mix retailer's banking syndicate, which recently appointed restructuring advisers Deloitte.

In a statement this morning, the Woolworths' board confirmed that it is in preliminary discussions regarding a possible offer for the retail business. However, it added that "there can be no assurance that any offer will be forthcoming".

It is widely believed that a demerger of Woolworths' underperforming retail arm and its media and distribution business – 2entertain, the DVD publisher, and EUK, a specialist distribution business – would be the best outcome for the struggling business.

One possible bidder for 2entertain is BBC Worldwide, which already owns 60 per cent of the joint venture.

Update, Sunday 23 Nov: According to this report, Hilco is now willing to take on more of the debt, but a decision must be reached very quickly or Woolworth's will have to declare bankruptcy.

Carrefour fires the boss

The CEO of the world's #2 retailer got the ax today. Carrefour announced that Jose Luis Duran would be replaced January 1 by Lars Oloffson, a top exec at Nestle. Things had not been going well at Carrefour even before the current downturn:

The company has consistently missed market expectations for its results in recent years, and the onset of the global economic crisis has further hurt its business, as French consumers increasingly seek out discount stores.

The company's stock is down 44% this year. Carrefour has been very active internationally in recent years, especially in China and Brazil, but it hasn't been enough to offset poor performance in France.

Big mall open in London

Not the best timing perhaps, but the huge new Westfield London has opened. The mall has 265 stores in 1.6mil square feet.

Mayor of London Boris Johnson is due to open the scheme in an official ceremony at 10.30am this morning and a day of events has been organised to welcome shoppers to the new centre, including an appearance by Australian pop star Danni Minogue at the HMV store.

Anchor tenants on the scheme are House of Fraser, Debenhams, Next and Marks & Spencer.

It also includes more than 50 cafes and restaurants, 4,500 parking spaces, a 14-screen cinema, a gym and a spa.

Tesco tells the government to ...

Complete the sentence any way you please.

A week or so ago, the UK government asked the major retail chains to speed up payments to small suppliers, as noted in this post.

In response, Tesco has notified their suppliers that they will be slowing down payments.

The grocer wrote to its suppliers saying it had changed payment terms from 30 to 60 days, effective from December 1, according to a letter seen by the Financial Times.

To be fair, the government request specified food suppliers and Tesco's message apparently went out only to non-food suppliers, but I think the odds are against Tesco lengthening terms in one category and voluntarily shortening terms in another. But maybe I'm wrong.

Shake-up at Woolworths

In trouble even when times were good, UK's Woolworths chain is really hurting now. The result is that several top execs are gone, and a "retail operations board" has been created.

Woolworths has made a raft of changes to its management structure, including the creation of a retail operating board, two new appointments and four senior management departures. [...]

A Woolworths spokeswoman said: "The creation of a Woolworths retail operating board will help create the strategy to take the business forward and provide the leadership to make that happen. Steve Johnson said he wants to accelerate the pace at which he can develop and implement plans within the retail business and this is a big part of being able to do that."

Obviously changes need to be made, but since when does a committee "accelerate the pace" of anything?

UK government asks supermarkets to pay faster

Well, it's a nice thought, of course, but I hope nobody's expecting much.

The UK's minister of the environment asked UK supermarket chains to pay small suppliers more quickly:

Hilary Benn, the environment secretary, met leaders of the main food chains to emphasise that small businesses were far more dependent on the timing of payments than larger companies.

"A single late payment can be the difference between survival and collapse. That will be truer now more than ever in the coming weeks and months," Benn said after the meeting in London. Small businesses and farmers were the lifeblood of the food industry and should be helped through "turbulent times".

For an idea of the most likely outcome, scroll down two posts to Tesco demanding more money.

I know I'm terribly cynical sometimes, but I really don't think the big retailers are going to help out suppliers' cash flow at a time when they can quite justifiably say, "Hey, I've got my own problems."

A case can be made that helping small suppliers survive is in the retailers' long-term interests (the existence of alternatives gives them more leverage against their big suppliers), but I suspect that most folks are going to be thinking very short-term (even more so than usual) until the storm passes.

Tesco demanding more money

No surprise, of course. I predicted this would happen (not that I'm claiming to be a genius -- it's pretty obvious). This was in a newsletter I sent out last month on how the economic downturn would affect trade promo:

Herewith, a few guesses:

1) Retailers are going to demand significantly increased funding. Well, okay, I admit I’m not going out on a limb with this one – retailers always demand more money. But I’m talking about the possibility of demanding a lot more.

1a) An increased portion of the increased funding will go into pricing, to support the sort of pricing actions Home Depot is doing.

So what is Tesco doing? According to The Times, they held meetings last week demanding huge payments from suppliers to fund a price war:

Tesco is locked in a battle with suppliers this weekend after allegedly demanding one-off cash payments and keener terms to help fund its price war with rival Asda and discount supermarkets Lidl and Aldi.

Britain’s biggest supermarket chain spent last week conducting the tense negotiations. One supplier, who refused to be named, said that during a 40-minute meeting he was handed a document with the new terms Tesco was suggesting to maintain its profit margins.

It had no Tesco heading or logo. The supplier said he had been given a deadline of November 2 to agree to the new terms. “It was aggressive to say the least,” he said.

How should a supplier deal with this? The ones who will be prepared, as I said last month, are those who have the capability of analyzing pricing and promotion data and doing accurate forecasting.

... let’s examine the question of who benefits from this. The answer is not going to be a surprise: If there is an increasing emphasis on pricing, then the manufacturers who have tools in place to analyze and optimize pricing will be ahead of their competitors. Actually, they are already ahead, of course, but to whatever degree the emphasis on pricing increases, their lead increases.

Aldi has a room for rent

And now for something completely different.

This is off-topic, I guess, but I just found this strange and wanted to pass it on. Aldi is going to start building stores in the UK with Travelodge motels above them:

Aldi and Travelodge have joined forces to launch hybrid supermarket-hotel developments to serve cost conscious consumers in the downturn.

The two companies are developing a site together in Newquay, Cornwall, where Travelodge will build a 74-bed hotel above Aldi's 14,500 sq ft store. A similar project is also under way at Aldi's Middlesbrough site. In both cases, Aldi has the freehold of the sites and Travelodge has taken a lease.

The Middlesbrough site will be completed by the end of next month and Newquay is scheduled to open in autumn next year.

I don't have the slightest idea whether this will be successful, or whether it's adaptable to the US. I'll leave that to you to decide.

Thailand looking at anti-hypermarket laws

The new Thai government is considering legislation that would restrict the growth of big stores.

The long-awaited retail industry regulations have moved at a snail's pace despite operators of small stores calling for years for legislation to regulate the rapid growth of hypermarkets, chain convenience stores and other large operators.

Critics say that the Interior Ministry's current urban planning and building codes are not adequate for the changed business environment, in which chains are squeezing out family businesses. [...]

Under the current draft, which focuses on protecting local retail businesses, existing giant retailers can expand but must comply with new regulations - restricting operating hours, size and proximity to the city centre - to leave room in the market for small players.

In the current global economic downturn, it is likely that populist legislation will be enacted in many countries.

A bidding war for UK retailers?

In the current environment it's heartening to see multiple parties scrambling to buy assets -- a sign that investors are willing to buy strong companies and that they see an end to the downturn, perhaps not too far off.

Anyway, that's how it looks to me, and why I'm happy to see several groups lining up to try to take over some of the UK retailers currently belonging to Iceland's Baugur group. I mentioned a few days ago reports that Britain's Sir Philip Green was interested in buying up the group's debt. Subsequently, some other private equity groups came forward, and now there are reports that management of some of the retailers may want to buy themselves.

The management of a number of Baugur-backed retailers are putting plans in place to buy back equity and debt now controlled by the Icelandic government.

Management of House of Fraser, Mosaic, Iceland and Jane Norman are understood to be considering mounting their own bids for the retailers. [...]

Following the collapse of Iceland's banking system, the Icelandic government controls the debt connected to Baugur's investment as well as the bank's stakes in the retailers.

Sir Philip Green is one of a number of parties circling Baugur's £2 billion debt, including private equity firms Permira, Alchemy, TPG and Blackstone.

EU fines Dole and Del Monte for banana price-fixing

The European Union fined Dole over $60 million for engaging in price-fixing on bananas. A German company, Weichert, was fined $20mil, but Del Monte will have to pay the fine because they owned Weichert at the time of the violations. Chiquita escaped fines by blowing the whistle:

Chiquita also participated in this activity, but the EU’s competition commission said it could not have opened the investigation without that company’s initial cooperation.

Chiquita escaped a fine of $113 million (83.2 million euros) by bringing the activity forward and applying for leniency, EU officials said in a press release.

Green may take over Baugur retailers

Sir Philip Green, a leading UK retail tycoon, is apparently in talks to take over the debt of Iceland's Baugur group, and thus effectively gain control of the company.

In a television interview yesterday, Baugur's founder and chairman Jón Ásgeir Jóhannesson said: "The person that owns the debt controls the company." He admitted that, should Green take charge, even the fire sale prices achieved for some of Baugur's companies would be the right thing for employees and others concerned.

Green flew into Iceland last week and has been locked in talks with the Icelandic government and Jóhannesson over a deal that would enable the billionaire owner of Arcadia to take control of Baugur's debt at a discounted price.

Green's Arcadia Group owns a number of retail chains in the UK, including Burton, Dorothy Perkins, Evans, Miss Selfridge, Outfit, Topshop/Topman and Wallis -- a total of over 2000 locations.

Icelandic bankruptcy saga has channel implications

Bad joke alert: Be on the watch for headlines with "meltdown" puns. I was just barely able to restrain myself.

But the jokes will probably not go over too well in Reykjavik, where the possibility exists that the whole country may declare Chapter 11, where the currency has lost half its value, and:

"The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion.

I've only commented a few times on the stockmarket and banking situation recently, mostly because I'm utterly ignorant on the subject, but this aspect of it has a direct application for channel marketers, since Icelandic investors have gone in heavily for retail ventures, especially in the UK.

Investment group Baugur, baed in Iceland, owns outright or has stakes in a number of UK high street companies, including Woolworths, Debenhams, frozen food retailer Iceland and Whistles.

Hamley, House of Fraser and other large retailers also have Icelandic ties.

Chains looking to international expansion

Perhaps because growth at home is looking difficult to attain in the short term, many chains seem to be seeking growth overseas -- here's a sampling from just the past few days:

Carrefour is planning to expand into Russia with its hypermarket format, investing $100 million over a five-year period. In addition, there are rumors that both Carrefour and Wal-Mart are interested in buying Russia's Lenta chain.

Marks & Spencer is opening a store on Shanghai's main shopping street, Nanjing Road.

Macy's is opening its first foreign Bloomingdale's outlet, in the new Dubai Mall.

Woolworths: possible takeover?

Back in June, I published a short piece here, quoting from a delightfully nasty article making fun of Woolworths, once Britain's retail powerhouse, but in recent years suffering a long, slow decline. I compared them to Sears.

It looks like times are getting even tougher for Woolworths. As here, the economy in the UK is weak, and a poor economy brings the weaknesses of companies to the surface (e.g., Mervyn's, Boscov's, Steve & Barry's). The boss has been canned and sales are down:

Variety store group Woolworths revealed a like-for-like sales decline of 6.7 per cent at its core retail business in the six weeks to July 26.

Group sales for the 25 weeks to July 26 slid 3.1 per cent and sales for Woolworths Retail dropped 3.2 per cent.

A high proportion of sales came from low-margin entertainment products such as CDs and DVDs, which, along with clearance, means that margin in the first half is likely to be down 125 basis points versus last year.

And, inevitably, the word now is that there will be a takeover:

Iranian property investor Ardeshir Naghshineh fuelled the rumour when it was revealed, after the markets closed that he had upped his stake in Woolworths to 9.68 per cent.

He is understood to be trying to put together a bid consortium for the beleagured retailer.