Surging property costs and a changing consumer landscape have forced German retail giant Metro Group to change its approach to the market in China.
In the 20 years since it opened its first Metro China wholesale store in Shanghai, the retailer has had a rigid policy of building its Metro Cash & Carry stores rather than renting.
Now, in Wuhan, the capital of central China’s Hubei province, Metro is trying to redevelop one of its stores into its first shopping complex.
“We are partly turning to asset-light from asset-heavy,” says expansion director and head of project development for China Geoffrey Guo. Metro Jinjiang Cash & Carry, a JV with Shanghai-based Jinjiang Group, has partnered with a local developer to build the Wuhan project, and has transferred property ownership to the developer. The plan is to expand the outlet into a 167,000 sqm German-themed town comprising a mall, office buildings and apartments.
The complex will include a smaller cash-and-carry shop, and Metro will buy back the store ownership. Meanwhile, it will participate in running the complex and try to introduce German brands through tenant leasing.
“Some of our land used to be in remote areas, but after a decade or two it became the city centre,” says Guo, “so we need to negotiate with local governments and change our plan.”
City plans
As well as Wuhan, Metro China is considering redeveloping some of its stores in Shanghai and other cities into five-star hotels, office buildings or neighbourhood centres.
Metro has grown slowly in China compared to its peers, opening 86 stores in 58 cities so far, about two-thirds of them owned by the company. In comparison, US-based Walmart has 423 stores in China.
With the rise of eCommerce, the German retailer has started renting more stores in the past few years to enable quicker expansion. It also launched its first two My Mart convenience stores in Shanghai this year.
“The demand for supermarkets is not so strong in places like Shanghai, where convenience stores are thriving,” says Guo.
My Mart offers Metro’s exclusive imported products, private-label lines and fresh fruits, as well as about 100 ready-to-eat items. Metro plans to roll out the concept to other cities in China through franchise.
While Guo says Metro’s focus will always be its wholesale stores, the company is seeking to open more stores in western Chinese cities such as Xi’an and Zhengzhou.
Metro’s sales in China climbed 17.4 per cent to €2.662 billion (US$2.8 billion) in the year to September 2015.
