The
Beijing Wangfujing Department Store Co Ltd (Group) wants to buy a 25 per cent stake in Seven-Eleven
Beijing Co Ltd, a Chinese joint venture with Seven-Eleven Japan Co Ltd.
The big retailer is willing to spend millions of dollars because it wants to tap into the convenience store market.
In a statement to the
Shanghai Stock Exchange, Wangfujing Department Store said it would pay US$8.75 million for the stake, currently held by the
Beijing Shoulian Commercial Group Co Ltd, a State-owned company engaged in logistics and department store operations.
Seven-Eleven Japan Co Ltd owns a 65 per cent stake in the joint venture company, while the
Beijing Shoulian Commercial Group Co Ltd and the China National Sugar & Alcohol Group Corp hold 25 per cent and 10 per cent respectively.
The deal is still waiting for approval from the Ministry of Commerce and agreement from US Seven-Eleven Inc and Seven-Eleven Japan; they have first refusal on the stake, according to an anonymous marketing official at the Wangfujing Department Store. The same official declined to reveal any detailed plans.
The Wangfujing Department Store said in the statement that it wants to diversify its business in the retail industry, and the purchase might help it quicken penetration of the market.
The store should also be able to help Seven-Eleven
Beijing get out of debt.
According to an unaudited financial statement from Seven-Eleven
Beijing Co Ltd, the venture made a net loss of 7 million yuan (US$864,000) in the first half of this year. The venture had total assets of over 200 million yuan (US$24.69 million) at the end of June.
When the first Seven-Eleven outlet opened in
Beijing in May 2004, Li Yong, deputy general manager of
Beijing Seven-Eleven Co Ltd, said 100 new stores would be open within a year in the capital and 500 were set to open there over the next five years. The annual sales volume of the convenience store operator was expected to reach 2.8 billion yuan (US$345 million) by then.
However, since May last year, only 27 Seven-Eleven convenience stores have opened in Beijing.
"It is due to poor regulations on franchises so far," Li said, adding that franchising is the main penetration strategy adopted by the convenience store king worldwide.
In fact, there is no franchise law; it is currently being worked on by the Ministry of Commerce and is expected to come into force soon. Then, the joint venture is expected to properly develop and see fast growth.
Fan Yanru, from the retail enterprise committee of the China Commerce Association for General Merchandise, said the deal reflected the Wangfujing Department Store's ambitious expansion plans. He said the aim was to modify its business mix to cut risks amid intensified market competition after China opened its retail market last December in accordance with the nations's commitment to the World Trade Organization (WTO).
"In addition, Seven-Eleven
Beijing can share resources sites, purchasing and sales networks with the Wangfujing Department Store to reduce costs and see a bigger profit margin," added Fan.
Seven-Eleven Beijing's poor performance is also due to the involvement of domestic supermarket operators, such as Wu-mart, Lianhua, Hualian and Haolingju in the convenience store sector.
Nevertheless, "the municipal government encourages the establishment of convenience stores, considering there are bigger residential communities and more rural urbanization," said Yan Ligang from the
Beijing Commerce Bureau.
