One more global retail giant has retreated from the mainland China market in the face of growing local competition as a unit of Nanjing-based Suning announced this week that it has taken over a chain of convenience stores from Hong Kong’s Fung Group.
Suning Xiaodian, the convenience store unit of Chinese retail giant Suning, revealed that it has acquired more than 60 Circle K outlets in Guangzhou from Fung Group, as the Hong Kong-listed conglomerate moves to cut its losses in China’s increasingly competitive convenience store sector.
Bian Nong, president of Suning’s consumer goods business group, told the media that Suning expects the acquisition will help the firm to consolidate its position in the South China market as the company expands beyond its base as an appliance retailer, into a broader swathe of the mainland shopping scene.
Fung Sells Down Money-Losing Stores
Suning Xiaodian said it has reached an agreement with Fung Group, which last year led the buyout of Toys R Us’ Asia operation, to buy 100 percent of the shares in the holding company which controls 61 Circle K branded convenience stores in Guangzhou. Suning said of the transaction that it expects the resources and experience of Circle K’s management team will facilitate its expansion into Guangzhou and the broader southern China market.
Terms of the takeover were not disclosed, however, Fung Group’s listed subsidiary, Convenience Retail Asia Ltd, had sold the Guangzhou Circle K business to privately held Fung Holdings Ltd for HK$48 million ($6.12 million) in 2015.
Circle K operates 61 convenience stores in Guangzhou and more than 300 stores in Hong Kong, Macau and nearby Zhuhai. Having first entered Guangzhou in 2002, Circle K has posted significant losses over the years due to intense competition, slowing economic growth, rising labor costs, among other factors, according to the company.
Suning Jr Takes Over Small Shops
The acquisition was the latest step in the expansion of Suning, which less than two months ago purchased an 80 percent stake in Carrefour Group’s China unit for RMB 4.8 billion ($699 million) as it strives to diversify beyond its roots in home appliance sales.
Suning Xiaodian, headed by Steven Zhang, the 28-year-old son of Suning’s founder Zhang Jindong, is the Alibaba-backed retailer’s entry into China’s jungle of small-scale community shops. Since opening its first store in January 2018, Suning Xiaodian has grown to 6,000 outlets in over 70 cities, serving 35,000 communities and 120 million consumers.
Headed by Suning group chairman Zhang Jindong’s son, Steven Zhang, Suning Xiaodian received a capital injection of $300 million from Suning and its related parties last October for operation and expansion. During May the parent firm helped out the son’s business line by investing another $450 million into the neighborhood store operator.
On 29 June, Suning announced that it was selling 100 percent of Suning Xiaodian to Suning Smart Life, which is 99 percent owned by Steven Zhang, for RMB 745 million. The younger Zhang is also the youngest chairman in the history of the Football Club Internazionale Milano
From January to July 2018, Suning Xiaodian achieved an operating income of RMB 143 million while suffering losses of RMB 296 million, according to public information.
Branching Out into More Store Categories
Under its online-to-offline strategy, Suning has been pushing to expand both the quantity and range of its retail stores by investing in department stores, supermarkets and convenience stores.
In April 2018 the company acquired the China retail operations of Spain’s Dia Group, taking over more than 300 Dia Tiantian supermarkets in Shanghai. In late 2018, Suning bought 31 stores in the central Chinese city of Xi’an from Grea Convenience.
In February of this year Suning agreed to purchase 37 department stores from Dalian Wanda for an amount estimated to be less than RMB 8 billion ($1.18 billion).