Wumart feels pressure of rising costs and tougher competition

Wumart Stores Inc, one of China's largest supermarket chains, achieved sales of 18.9 billion yuan in 2013, up 9 percent. But net retail profit fell 23.7 percent to 459 million yuan, the first slide since 2008. Provided to China Daily

Despite a booming retail market, Wumart Stores Inc, one of China's largest supermarket chains, on Thursday reported its first decline in full-year net profit in more than six years.

Wumart achieved sales of 18.9 billion yuan ($3.1 billion) in 2013, up 9 percent But net retail profit fell 23.7 percent to 459 million yuan, the first slide since 2008.

The company attributed the decline to consolidation and restructuring of the store network in the past year, driven by rising rents and operating costs.

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Beijing-aced Wumart closed at least 52 stores of various types last year. It closed outlets where leases were expiring or stores were underperforming.

"Wumart shares were flat over the past two years. But the decline in profit was probably more related to increased operating costs in terms of rent, logistics and labor, since the company failed to grow faster than the market," said Jason Yu, general manager of Kantar Worldpanel.

"The fact that Wumart remains a regional player, with most of its sales coming from the North [of China] and only a limited presence in the East region, also drags down their market performance;' he said.

Last year, Wumart dropped plans to acquire stores and an equity stake from rival C.P. Lotus Corp.

Wumart "needs to strengthen its competitiveness in the face of RT-mart and the fast emergence of Yonghui Super Stores, by either increasing its price competitiveness or store differentiation;' he said.

Wumart, which rivals Walmart, operated by Wal-Mart Stores Inc, and RT-Mart, run by Hong Kong-listed Sun Art Retail Group Ltd, had several years of steady growth in profit in China's booming retail market. Net profit soared from 361 million yuan in 2008 to 602 million yuan in 2012.

But the Chinese retail market has become a tougher nut to crack, even for international giants, as fierce competition and rising rents in a highly fragmented market have forced many retailers to close or relocate outlets.