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Carrefour shows Tesco what a real retail crash looks like

The British chain had a bad Christmas; the French hypermarket is facing an existential crisis

When Tesco unveiled grim Christmas sales figures and its first profit warning in decades on 12 January there was a very sharp intake of breath among investors who had come to rely on the world’s third-biggest retailer as a reliable profits machine – especially in an economic downturn, when food retailers are supposed to be the ultimate defensive stocks.

But Tesco’s problems are as nothing compared with the carnage at Carrefour, the world’s second-biggest retailer with 9,500 stores in 32 countries. The wheels have truly come off the trolley at the sprawling French group, which claims to have invented the concept of the hypermarket in 1963. It has issued a shocking six profits warnings in the past year and last week admitted that its annual results would be at the very bottom of the 15%-20% profit decline analysts had pencilled in. Its shares have tumbled from some €36 to €17 in the past 18 months.

Like Tesco, Carrefour’s problems are rooted in its domestic market, which accounts for 40% of group sales. Clearly a core market that covers France, Spain, Italy and Belgium is not a good place to be, given the current eurozone chaos. Underlying sales were down 4.7% in France, 7.5% in Italy and 7.7% in Spain, making Tesco’s 2.3% decline look relatively healthy. But Carrefour has been struggling for years; its core market sales per square metre are down more than 30% on 2003 levels. It faces stiff competition in its home market from rivals such as Casino and even its expansion into fast-growing China is going badly.

Three years ago Carrefour hired a new Swedish chief executive from Nestlé, Lars Olofsson, whose strategy was an expensive and upmarket revamp of the biggest hypermarkets, to be rebranded Carrefour Planet. Last week he was forced to accept the revamp would be consigned to the slow lane (just days after Tesco boss Phil Clark also put superstore development on the back burner), and his new plan is to cut prices to lure back cash-strapped shoppers.

Analysts reckon Oloffson’s days are numbered, but he, or his successor, face arguably the biggest turnaround challenge in European retail – or, given the fragility of the entire euro concept, the biggest disaster. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds