Carrefours failure in Singapore free essay sample

In November 2012, France-based Carrefour SA (Carrefour), the second largest retailer in the world and the pioneer of the hypermarket concept in Singapore, closed down its two megastores in Suntec and Plaza Singapura, marking Carrefours exit from the Singapore retail market. According to the company’s statement, Carrefour Singapore had decided to quit, as â€Å"expansion and growth perspectives do not allow reaching a leadership position in the medium and long term†. Ho Sue Yuin A0088564N 2. 0 Complications faced by Carrefour in Singapore The main problems encountered by Carrefour while expanding its market in Singapore include low growth in sales, ambiguous consumer preference, limited space and loss of focus due to handling of main operations in Europe. 2. 1 Tough competition in a saturated market A hypermarket is a one-stop shop that combines a supermarket and department store and hence offers a wide range of products. As a pioneer of the hypermarkets in Singapore, Carrefour stores initially managed to attract customers who preferred convenience due to busy work schedules in this rapidly growing country. Singaporeans were excited to shop at a place that offered both groceries and general merchandise such as electronics and furniture under one roof. However, competitors from both local and neighboring regions started to emerge fiercely and began to overtake Carrefour. Giant, originally from Malaysia, opened its first store in Singapore in 2000 and currently has nine outlets; NTUC FairPrice, which entered the market in 2006 with strong governmental support, has five stores now. Besides, grocery retailers like Cold Storage and Shop and Save; electronic retailers like Courts and Best Denki gave Carrefour a tough time gaining market share. 2. 2 Consumer preference shifted towards convenience and price Carrefour was successful in attracting customers in the beginning due to its new concept in Singapore, but it faced difficulty in retaining them. As the hype died down and more local players emerged, customers started to have more contemplations when choosing from the various shopping options available. According to Sonya Madeira (Madeira), managing partner, Rice Communications, the main reason for Carrefours failure in Singapore was low product differentiation, Low product differentiation means that shoppers can get similar products quite easily elsewhere, and so make purchase decisions based on convenience and price. Indeed, as more choices became available, customers tended to be more sensitive towards convenience and price. Letty Lee, director of retail services at CB Richard Ellis, also pointed out that â€Å"the convenience of supermarkets in suburban malls added to Carrefour’s woes†. 2. 3 Restricted space for Carrefour operations and customers’ storage As a hypermarket, Carrefour required large area for its operations – typically ranging from 6,500 to 7,400 square meters. It failed to open more stores in Singapore due to lack of space and high population density; even when there was space available, Carrefour always lost out to the local players who had stronger ties with developers; and thus have more advantages in negotiations with regards to leases. As a result, Carrefour’s stores were located at the major real estate sites in the main shopping areas, which in turn incurred substantial cost in rental. In Europe, where Carrefour’s main operations were, consumers tend to shop less frequently and purchase in large quantities, as they have no issues in goods storage. On the other hand, in Singapore where space is at a premium, consumers shop more regularly and hence have a liking for neighborhood stores due to accessibility and proximity. It was too troublesome for them to travel to Carrefour located in the center of the city, with heavy traffic and high parking fees. 2. 4 Complicated management issues faced by parent company With the appointment of the new Chief Executive Officer of Carrefour SA in France, Mr. Georges Plassat, attempts were made to restructure Carrefour’s operations and concentrate on its European markets. As analyzed by Mr Plassat, Carrefour’s overexpansion had left it with â€Å"insufficient funds to invest at home. † Carrefour also found it arduous to administer the process from the sourcing to the delivery to the stores. The systems required to manage such procurements are extremely complicated, especially for products in the fashion area, where variation and uneven demand became the main struggles. Hence as a part of its recovery plan, Carrefour decided to pull out of some markets, including Singapore, to raise cash for the ailing parent company. Allan Chia, head of the marketing program at UniSIM’s School of Business, suggested that Carrefour’s move in Singapore would likely help it streamline its operations and focus on its European markets. 3. 0 Recommendations for internationalization International growth is a high-risk but high-reward proposition, and it is essential for the growth of the world’s leading retailers like Carrefour. This section analyses the strategies used by Carrefour Singapore to handle the challenges and reasons of failure. Lessons learnt and suggestions proposed are then included for the reference of future companies to avoid similar mistakes made by Carrefour in order to achieve success in international expansions. 3. 1 Adopt a clear differentiation strategy that distinguishes itself from the competitors Retail market in Singapore was highly saturated and dominated by local players with a formidable presence. Carrefours competitors were spread across the country with hundreds of stores. While the product assortment was similar to other retailers’, Carrefour did not offer any distinct exclusivity in the products and services it offered. The prices were also slightly higher than the local rivals. Carrefour tried to tap onto the existing consumer phenomenon, whereby foreign brands were perceived as of the higher quality products and were previously more preferred by the locals due to rising affluence and brand awareness. However, local rivals could easily copy this approach with the ease of accessible resources and network distributions available due to globalization. To overcome this issue, Carrefour should recognize the existence of threat posed by the local competitors who had more competitive advantages such as better understanding of the local markets, extensive network of suppliers and partners, etc. Carrefour had to find a way to stand out and be different, by gaining a good reputation in a specific area or due to qualities possessed, to be perceived as the unique and outstanding hypermarket where customers would prefer over the other retailers. For example, the ability to provide high quality products, to offer low prices, to deliver excellent and personalized customer service, etc. My recommendation in this section is for Carrefour to look into after-sales service, as changes in price and quality of the products brought in from Europe would require a lot of time and mass modifications, which makes it more challenging to adjust in short term. The after-sales services proposed include online shopping, delivery of goods, appropriate â€Å"return and refund policy† and customer service or helpline. As it is a known fact that efficiency and convenience have become the top few priorities considered by Singaporeans when they do grocery shopping, online platform such as Internet website and mobile App could be developed to allow customers to browse through products in store, make orders and have the goods delivered to the doorstep. With this extra service provided, concerns with regards to traffic problems and inconvenience could be eliminated. A return and refund policy which allows consumers to change their minds and return undamaged goods within 7 days, could be introduced. This flexibility for the consumers would increase the chance of those who are undecided in purchasing the goods first and end up not returning. Good customer service and useful guidance, which is consistent before and after sales, could distinguish Carrefour from its rivals who act as mere intermediaries. I believe the above approaches, which revolved around exclusive and premium services, could generate consumer’s satisfaction and earn customer loyalty. This would allow Carrefour to position itself uniquely as one of the premium and then preferred hypermarkets for consumers to shop at. Adapt flexibly to local lifestyle and changes in the market Consumers from different regions respond differently to a firm’s operational strategies. Hence, localization is very important for an international company to have a firm spot in a saturated market like Singapore. Carrefour’s failure in penetrating the Singapore market has shown that local market dynamics has a potential to make good supply chain strategies impossible to operate. What works in France does not guarantee an equivalent success in Singapore as the market dynamics play an important role. Relevant evidence could be seen in the headquarter of Carrefour itself in France, when Lars Olofsson, the former Carrefour CEO, brought in an Englishman from Tesco to run French hypermarkets. He attempted to make Carrefour use English in its operations and for communication within the executives, but things did not work out well and critics were all over the place. His successor, Mr Plassat, who successfully turned the company over, made an important statement relating to localization, Ho Sue Yuin A0088564N 8 MNO 3303 Individual Assignment â€Å"When dealing with something as sensitive as the place people get their food, it’s important to be close to the local culture. † My recommendation here is to relook into the sales of the products Carrefour were selling in all aspects and make suitable amendments to cut off some product lines, remain only the promising Europe products, and venture into collaborations with local or regional suppliers. With the exception of products that thrive on being â€Å"imported† or whose brand is tied to an allure of the originating country back at home, Carrefour should strive towards reception of local brands. Every market has a unique local taste, and it is important to realize the difference between Europe and Singapore that is bombarded with a variety of cultures and food. Distinct, or sometimes completely contrasting tastes, makes it necessary for Carrefour to alter the product assortments, regulate pricing and merchandise in-store differently than the stores in Europe. More Asian brands that are highly popular in Singapore could be brought to the racks, as these products, tested and proven, would ensure sustainable demand followed by promising sales. Besides translating the marketing materials into English and Chinese (the common languages in Singapore), advertising campaigns could tap onto the domestic marketing resources and arouse feelings of reminiscence by reflecting local culture, values and language such as the various dialects and Singapore’s unique slang called â€Å"Singlish†. Events and promotional campaigns suited to the various festive seasons in the multi-cultural Singapore could also be held to boost sales during the occasions celebrated. For example, TV ads could be designed to portray the joy and excitement of shopping in Carrefour during Chinese New Year. Another suggestion would be to encourage customers to voice out their views by giving feedback on products and services. Carrefour has to be open and inviting to suggestions given by the consumers to understand local culture and grasp the need of the local consumers. By flexibly adjusting and improving slowly with the help of the customers, Carrefour would be able to portray a positive and sincere image, which would earn the liking of customers. 3. 3 Invest in the right operation sites Carrefour’s two megastores in Singapore were situated at the Suntec and Plaza Singapura. These two busy and commercialized sites located at central Singapore seemed to promise a large crowd and great business opportunities, but it was also a deterrent for a huge group of potential consumers who were not willing to travel all the way to the central areas where heavy traffic and heavy consumption costs were inevitable. Besides, the rental fees for both locations were so expensive that Carrefour suffered significant financial woes, especially when coupled with the deteriorating sales. The lesson learnt here is to have a detailed and thorough research conducted on all possible locations in the new country penetrated before deciding on the business spots. The research should cover analysis of the target consumers’ population within the potential area, the cost incurred from rental and leasing fees, and not to forget the sales statistics of the nearby businesses in the area considered. Given the capital investment required to open a new store, a location off the beaten path would be a very costly mistake with disappointing results. In this case, IKEA’s successful locations in Singapore could be a reference for Carrefour. As a lifestyle store that requires a lot of space as well, Ikea chose to have its stores situated at two ends of Singapore – Alexandra at West Singapore and Tampines at East Singapore. This ensures that consumers from all over the country are being reached out to. A well-defined real-estate strategy could also be considered for the benefits of the company’s long-term expansion. Research on real estate takes time and guidance by local experts as strategic locations should be spotted and looked into carefully. After studying the locations in Singapore, I would recommend Carrefour to set up its store at IMM, Jurong East. This location is less expensive than sites at the town area and provides a substantial crowd. It would also be able to pull in customers from the neighborhood around with its convenience and reputation. This allows Carrefour to potentially receive higher profit margins, as the rental costs are way lower. 3. 4 Develop responsive local management and consider strategic alliances As could be seen by the lack of efficiency of Carrefour in responding to the market dynamics, it is essential to have a great understanding to the market penetrated. The market expansion strategies implemented may not necessarily have to be tied to the approach used by the parent company at home. My recommendation would be to have a decentralized organizational structure by establishing a strong local management team with the autonomy to make decisions according to the local market trends and consumer phenomenon observed. Carrefour should hire a local team comprising the general manager and support staff, as they are the ones who would easily understand local consumer preferences and how to market to these consumers. To make sure that the business objectives do not alleviate from the parent company too much, expatriates could be sent over to serve as guidance for the operations overseas and linking bridge between Carrefour Singapore and its headquarter in France. Strategic alliances through joint ventures or acquisition also form a major part of my suggestions for Carrefour. Partnerships with local leaders or acquisition of local companies which had been established and operating in the retail market in Singapore would allow Carrefour to the leveraging of many advantages, for example the ability to tap on local contacts, existing business relationships, legal requirements, etc. Mutualism achieved through combined resources, expertise and knowledge would strengthen Carrefour’s operations and competencies, enhance its competitive advantage, minimize possible missteps and pitfalls, timely grasp opportunities and overall increase its confidence in the market. It is also vital to engage the services of knowledgeable and experienced people in the Singapore retail markets. These local experts could assist Carrefour in understanding the genuine cost of managing business operations in Singapore and steer the management past dangerous miscalculations about the true financial opportunity available. Ho Sue Yuin A0088564N