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Protests in China Give Retailers Fits

In spite of the major Olympic-related protests outside French retailer Carrefour's hypermarkets this April, China retail experts say they don't expect any long-term damage to the commercial sector.

Carrefour operates 112 superstores in China and had been well-regarded there prior to the outburst over disruption of the Olympic torch relay in Paris. The retailer was not involved in the fracas between Tibetan human rights activists and Chinese athletes. But protesters latched onto Carrefour anyway because of its French connection.

Crowds of 1,000 to 2,000 people gathered at stores in at least 10 cities amid reports of rising anti-Western feeling among the Chinese. Analysts say such risks are to be expected as part of the tradeoff for doing business abroad.

“Added political risk is part of the equation — absolutely,” says Tom Murphy, senior fellow at the Washington, D.C.-based Urban Land Institute. China's growing middle class has become more sophisticated about its consumption decisions, he says, and can afford to make choices.

The threatened boycott has not materialized, and retail experts say foreign investors needn't be alarmed. “I think you're going to see a blip in the sales of a company like Carrefour, but three to six months from now it's not going to be a big issue,” predicts Shaun Rein, managing director of the China Market Research Group in Shanghai.

Carrefour has the highest sales volume among Western retailers operating in China, and reported that its first quarter 2008 performance there was the strongest since 2001, with 18.5% sales growth over the same period a year ago.

Market watchers say the vehement feelings that spawned protests may be subsiding. “We find this type of anti-foreign sentiment every couple years in China,” Rein says. In the past, Chinese tempers have flared at Japan over its World War II role, and at the U.S. over the accidental bombing of the Chinese embassy in Belgrade in 1999.

The Carrefour protests were not representative of a larger trend, argues Hong Kong-based Morgan Parker, CEO of Taubman Asia. “At the end of the day, people are generally apathetic about political causes in China.”

The Chinese are more interested in improving their quality of life, says Parker, which is linked to acquiring goods, many of them from foreign manufacturers. Parker is supervising Taubman's first Chinese venture, a luxury mall of more than 650,000 sq. ft. in Macao, a territory administered by China.

“They want good, safe, quality food; they want cheap yet sturdy clothes, so they're going to go to Carrefour,” adds Rein.

Carrefour reported $3 billion in 2007 sales in China, a 19.4% increase over 2006. It added 22 hypermarkets there in 2007 and is also noted as the only Western company to reach the top 10 among Chinese retailers.

Average sales growth among the top 10 stores reached 25.5% in 2007, including 25.2% in unit growth, reports the China Chain Store & Franchise Association.

In recent days, Carrefour has contributed to the relief effort for victims of the massive earthquake that struck central China on May 12. By May 20, 40,000 people were reported dead. Carrefour donated the equivalent of $376,000 in cash plus $32,000 in goods for the relief effort.

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