Mystery shoppers

Not an ideal opening day...

“Too many monks but too little gruel’ is a Chinese proverb. It was also a metaphor for a commercial spat in Shanghai this autumn, where a growing number of retailers are fighting for a finite pool of customers at newly opened members-only stores.

The latest to join the fray is Carrefour China, which opened its first ‘members’ store in late October. But debut day didn’t go exactly to plan, however. The outlet was soon swamped with customers but a number of them were said to be acting on behalf of suppliers wanting to repurchase their own goods, which prevented conventional shoppers from getting their hands on what they wanted.

Carrefour attributes this behaviour to pressure from rival retailers. which are allegedly demanding exclusivity from suppliers (a tactic known locally as choose “one or the other”). It went public with its concerns on its Sina Weibo account that evening – apologising to genuine customers who missed out – before later filing an official complaint that laid the blame for the debacle at the door of Sam’s Club, another members-only chain.

The weibo post made an impact, with media turning up the next day to see if it would happen again. China Business News noted fewer customers in the shopping aisles, perhaps put off by the news of empty shelves. There was a brief flurry of excitement when reporters sighted a promotional van for rival chain Hema X nearby. But this was soon explained as travelling to a nearby outlet of the grocery brand, not as a signal of more skulduggery at the Carrefour store.

In fact Alibaba-owned Hema X says that it suffered from the same issue of a suspicious surge of shopping when it opened its first membership-only store in June.

It is also preparing a report for the regulators, which the local media says will name Walmart-owned Sam’s Club as an instigator too.

Some of the irony of Hema’s complaints weren’t lost on netizens. In April, Alibaba was fined Rmb18.23 billion ($2.85 billion) for monopolistic practices, after forcing vendors to choose “one or the other” between rival e-commerce platforms.

Meanwhile Alibaba enlarged its stake in Carrefour China’s owner Suning.com this summer as part of a consortium that purchased a 17% holding in the troubled retail giant. The deal gave debt-laden Suning a $1.4 billion lifeline but led to founder Zhang Jindong’s resignation as chairman.

This week Carrefour China was rumoured to be up for sale itself with a price tag of up to $800 million. If correct, Suning.com will have made no return on its Rmb4.8 billion acquisition of an 80% stake in the unit from France’s Carrefour in 2019.

The continued success of online shopping in the Chinese market has put pressure on bricks-and-mortar retailers for some time. Earlier this year, Walmart was also reported to be considering a sale of its Chinese chain stores, for instance. But membership-only stores have been a brighter spot for the sector. As we reported in WiC560, Sam’s Club opened the world’s largest store of its type in Shanghai last month and it has plans to nearly double its footprint in China from 28 to 45 stores by the end of 2022. Its second quarter results revealed 7.7% year-on-year growth in sales at Sam’s Clubs in China and 12.2% growth in membership fees.

Retailers like the concept because the membership fees promise a more stable source of income. Customers seem happy to accept a more limited offering of goods and brands in exchange for discounted prices. Membership-only stores typically stock about 4,000 lines, compared to a hypermarket’s 10,000.

However, there’s often relatively little differentiation in the goods on offer across the various retailers, which increases the likelihood of fierce competition. Retailers try other ways to stand out from the crowd. Sam’s Club focuses more on membership add-ons, like deals at restaurants and health clubs. Rival operator Costco is known locally for its more international supply chain, while Hema X trades on its reputation for the freshest produce.

Sam’s Club has denied the accusations that it set out to disrupt Carrefour’s debut day. It told the Global Times that an internal review found no evidence of the allegations from Carrefour or Hema X. The company adheres to a policy of “legality and compliance,” Sam’s Club added. n

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