Some Developed Market Brands Stumbling in China

scott

Yum Brands tanking during the day and further in AH after a very negative report that included -25% y/o/y in China in Jan/Feb.

http://blogs.wsj.com/marketbeat/2013/02/04/yum-expects-to-break-string-of-earnings-growth-amid-chinese-chicken-scandal/

Obviously, the chicken scandal hurt and China's growth may not be what it was. However, the Yum sales seem to be part of a trend seeing Chinese consumers grow less interested in foreign brands/chains. Yum bought Mongolian Hot Pot restaurant Little Sheep last year, but if it's doing well, it clearly isn't enough to turn the sentiment around.

Tesco and Wal-Mart have lessened their plans to expand in China. "In 2010, Tesco planned to double China hypermarkets and shopping malls to 200 in five years. Now, instead of opening around 20 stores a year, it will open 16 hypermarkets this year. It closed four outlets in August. It’s also building fewer shopping malls than planned. Rival Wal-Mart has said it is opening fewer China stores this year than originally planned, adding only half the square footage it had forecast. Carrefour in August said it will shut its Singapore stores before the end of 2012 amid competition from local chains such as NTUC FairPrice and Dairy Farm International Holdings Ltd. (DFI), two years after closing stores in Thailand."

http://www.bloomberg.com/news/2012-10-18/tesco-stumbles-with-wal-mart-as-china-shoppers-buy-local.html

From the same article: "Tesco Plc (TSCO) this week is trying to lure Chinese shoppers with promotions on soy sauce, cooking oil and apples. Emily Zhang still won’t do much of her shopping there.
The 30-year-old Shanghai resident buys most of her produce at an informal market close to home where daily supplies are fresh, the location convenient and friendly vendors throw in the occasional cooking tip."

As for Wal-Mart, from their quarter in November: "Traffic declined 7.6 percent at its stores in China, continuing a string of declines, and it is facing challenges in Japan due to the economy. Sales there fell 1.8 percent and traffic declined 1.7 percent." (http://www.reuters.com/article/2012/11/15/walmart-results-idUSL1E8MF1CX20121115)

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Best Buy has also closed their China stores, and have focused on the company's Five Star subsidiary, a local chain that they bought a stake in. Home Depot closed most of their China stores. (http://online.wsj.com/article/SB10001424052702303444204577460693377819420.html)

In the Radio Shack discussion thread, the company has announced that they are now trying to make their way into Asian Markets, but aren't doing so alone and will not be the majority owner of their Asian joint venture.

RSH, HNHPF.PK 2:52 AM Six months later (original), RadioShack (RSH) formalizes the terms of its Asia joint-venture with Cybermart (HNHPF.PK). Cybermart will own 51% of the JV, which could see the retailers opening small-format stores in China, Taiwan, Hong Kong and Macau. RSH shares are -68.5% Y/Y, but +43.9% M/M - the start of a new uptrend, or an opportunity to dump shares. [Consumer] Comment!
http://seekingalpha.com/currents/all

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Overall, it's good to own some US multi-nationals that have exposure to China and some US companies are doing well overseas, but in some cases brands from developed markets are starting to find that Chinese growth is not as easy as expected. It also seems as if the interest in developed market brands is waning a bit, and local chains can be more nimble and have a better understanding of the customer.

ECON, the EM consumer ETF, is certainly an option to play the EM consumer via local brands.

Charles

...local chains can be more nimble and have a better understanding of the customer.

Makes sense to me. Even Google having hard time in China, no?

Suspect same holds here in US. Perhaps IKEA an exception. Can't really think of other successful foreign brand name stores in US. Toyota, sure. But broader retail?

Hello Kitty. Hm, designer brand stores...outlet stores. Swatch.

British I think tried Fresh & Easy food markets...not sure how well it is doing.

Airlines. Oil companies, of course.

Better to come in the back door, like Belgium's Stella Artois did with Budweiser, China's Lenovo did with IBM's ThinkPad, Germany's Allianz did with PIMCO.

Thanks for ECON tip.

msf

Reply to @Charles:

Perhaps IKEA an exception. Can't really think of other successful foreign brand name stores in US. Toyota, sure. But broader retail?

H&M Group? First US store opened in 2000, 53 years after first store opened in Sweden.

Unlike the aforementioned Tesco and Walmart, H&M "plans to add 325 stores in 2013, with its biggest expansion in China and the US." The Independent (UK), January 30, 2013.