Carrefour's Exit from South Korea

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Case Details:

Case Code : BSTR241
Case Length : 19 Pages
Period : 1995-2006
Organization : Carrefour
Pub Date : 2006
Teaching Note :Not Available
Countries : South Korea
Industry : Retailing

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"The withdrawal of Carrefour from South Korea is mainly explained by a strategic decision by headquarters, especially because of the difficulty in acquiring a leading position in the near future."¹

- Philippe Broianigo, CEO, Carrefour Korea, 2006.

"They (Carrefour and Wal-Mart) have struggled to find the economies of scale and to compete with groups like E-Mart, and they've struggled just as much with the back-of-house business as much as the front-of-house."²

- Morgan Parker, President, Taubman Asia³, 2006.

"Wal-Mart and Carrefour were not aggressive enough in expanding their networks in South Korea, once they lost the race, they could never catch up."⁴

- Koo Chang Gun, Retail Analyst, Korea Investment and Securities⁵, 2006.

Carrefour Bids Adieu to South Korea

On April 28, 2006, France based Carrefour SA (Carrefour), the second largest retailer in the world, sold its 32 hypermarkets in South Korea to E.Land Corporation⁶ (E.Land) for 1.75 trillion Won⁷. The sale marked the exit of Carrefour from the South Korean organized retail market.

At the time of exit, Carrefour was the fourth largest retailer in the country. Carrefour had entered South Korea in the year 1996. The company had invested more than 1.5 trillion Won in the country till mid-2006, making Carrefour's foreign direct investment (FDI) the single largest in the Korean market. (Refer Exhibit I for the details of other leading retailers in South Korea).

According to Carrefour's top management, the exit from South Korea was a part of the company's plans to focus only on those markets where Carrefour was among the three leading retail chains.

As a part of the plan, Carrefour exited several markets including Japan, Mexico, Czech Republic and Slovakia and began concentrating on the markets where it had a strong position including Brazil, Poland, Turkey and China.

On withdrawing from South Korea, Carrefour announced, "The divestment of Carrefour Korea is part of a wider effort to withdraw from insufficiently profitable or non-core activities."⁸

In September 2006, E.Land signed a formal agreement to acquire Carrefour's South Korean operations for 1.48 trillion Won, a price lower than the initially agreed price.

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1] "Carrefour Sells South Korean Business to E.Land for 1.5 billion Euros,"www.channelnewsasia.com, April 28, 2006.

2] Curt Hazlett, "Koreans Want More than Low Prices, Discounters Learn,"www.icsc.org, October 10, 2006.

3] Taubman Asia is the Hong Kong based subsidiary of Taubman Centers. US based Taubman Centers owns several upscale malls all across the US. Over the years, Taubman developed over 80 million square feet of retail space and other properties. The sales in Taubman malls averaged US$ 508 per square foot in 2005.

4] Choe Sang-Hun, "Wal-Mart Selling Stores and Leaving South Korea,"The New York Times, May 23, 2006.

5] Korea Investment and Securities is the leading distributor of investment trust products and one of the major securities firms in Korea.

6] South Korea based conglomerate E.Land started off as an apparel retailer in 1980. As of 2005, E.Land operated several retail outlets including a chain of clothing stores, hotels, restaurants, and IT firms.

7] As of November 10, 2006, 1 US$ = 933.7 Korean Won and 1 Euro = US$ 1.286.

8] "Carrefour Enters into an Agreement with E.Land for the Divestment of Carrefour Korea,"www.carrefour.com, April 28, 2006.