By PRUDENCE HO HONG KONG—French hypermarket operator Carrefour SA is exploring a sale of its businesses in China and Taiwan that would involve either an initial public offering in Hong Kong or combining some of those assets with another company, according to people familiar with the matter.
The IPO route could represent around $1 billion in funds raised, one of the people said, adding that Carrefour's plans are still at a preliminary stage. The plan is to find a sustainable future for the businesses, either by raising money for further expansion or boosting competitiveness through a partnership.
Carrefour has been pulling back from markets it doesn't dominate or have critical mass in while focusing on its home market, France.
While the China operations account for the bulk of Carrefour's Asian business, it doesn't lead as a hypermarket operator in the mainland's intensely competitive retail scene. It currently operates 220 hypermarkets in China, making it the fourth-largest player in the country, with a 6.9% market share last year, well behind market leader Sun Art Retail Group Ltd., 6808.HK +0.52% a French-Chinese joint venture, which commands a 13.6% share, according to data from Euromonitor. Six years ago, Carrefour was the third-largest player in the country, with a 9.1% market share.
Carrefour is the market leader in Taiwan, with a 48.1% market share last year, according to Euromonitor.
Carrefour has been pulling back from other markets it doesn't dominate or have critical mass in while focusing on its home market, France, which made up 45% of its revenue in the first quarter of this year. The company has withdrawn from a number of countries in Asia over the past few years, including Japan, South Korea, Indonesia and Malaysia. Carrefour declined to comment on its plans for the operations in China and Taiwan.
A two-track plan is a common approach, as it lays the groundwork for an IPO should efforts to find an acceptable offer fail. With a partner, Carrefour could stay competitive, while an IPO would bring in cash that could be used to expand further in China, one of the people said. Carrefour hasn't hired bankers yet, the people said.
Many retailers, including local ones, have struggled to make a profit in China's competitive hypermarket sector.
Carrefour's China hypermarkets account for around 77 % of its Asia sales. Asia sales came to €6.4 billion ($8.4 billion) last year or around 8% of group sales. The company's Asian operating margin—a profitability ratio showing operating income as a percentage of sales—was 2.6% last year, compared with 3.5% in 2011.
"Companies are all facing challenges [in China] because of changing of consumer consumption habits, increasing costs, growth in online shopping and strict regulation on pricing, food safety and consumer protection," said Wu Weiyi, vice president at AlixPartners, a restructuring and turnaround specialist.
Mr. Wu said gross margins at hypermarkets and supermarkets in China are dropping, and sales volumes grew last year at their slowest pace in the last 10 years.
Nevertheless, analysts say that in the long term, China is still attractive for retailers seeking growth. According to Euromonitor, sales volumes at hypermarkets in China almost doubled to $91.1 billion last year from $48 billion in 2008.
Carrefour, which has around 370 stores in Asia, sold its Japanese assets, including eight hypermarkets, to Japan's largest retailer, Aeon Co. in 2005.
In 2010, Carrefour sold its Thai business to Big C Supercenter PCL, a hypermarket operator controlled by the French Casino Group, for €868 million. Last year, it sold its Malaysian operations, also to Aeon, for €250 million.
—Nadya Masidlover in Paris and Laurie Burkitt in Beijing contributed to this article. Write to Prudence Ho at [email protected]