Carrefour

Food MarketWatch

COMPANY SPOTLIGHT: CARREFOUR Carrefour: abandoning Russia

Europe's largest retailer has reported a lackluster set of third quarter results, but the real shocker was its announcement that it will be leaving Russia, just a few months after opening its first stores there. The unexpected withdrawal comes as a surprise and is a setback for international retail development in the country. Carrefour reported a 2.9% drop in group sales for Q3 2009, with the strongest sales declines coming from its core European base. Sales in France declined 3.4% and turnover in the rest of Europe was down 6.6%. The only regions to report positive growth were Asia and Latin America, with sales up 5.1% and 5.3%, respectively. Despite an underwhelming third quarter performance, the real surprise from the company's market update was the announcement of its decision to pull out of Russia just four months after opening its first two hypermarkets in the country. While Carrefour puts its Russian withdrawal down to the lack of organic growth prospects and acquisition opportunities in the short and medium term - which will impede its goal to attain market leadership - there are likely to be other factors at play in its decision to pull out of such a potentially lucrative market. Although the economic downturn has dampened Russia's retail prospects, Verdict continues to believe that the long-term growth potential of the market remains attractive. However, despite strong growth potential, the market is still plagued by severe obstacles and barriers to entry, including a complicated legislative framework, and widespread bureaucracy and red tape. Corruption also persists at both regional and local levels, further hindering retail development. Indeed IKEA's recent troubles in the country with utility companies soliciting bribes and other such grafts further highlight the difficulties awaiting international retailers pursuing organic expansion in the country. Meanwhile, acquiring a...