BERTELSMANN AG, the German media Group, will close all its 36 Bertelsmann branded retail bookstore chains in 18 cities around China by the end of July because of a poor financial situation.

However the company said it would not retreat from the Chinese market as it plans to focus on other fast developing businesses such as media services to expand its footprint.

"The decision was made after a comprehensive strategic review and considerable efforts over many years," said Yu Le, chief executive of China Corporate Center.

"Despite our significant managerial and financial resources, the business lacks the scale and profitability necessary to make it a sustainable option."

Bertelsmann has the world's largest book club covering 56 countries. Membership of the book club in China has grown to 1.5 million over the past 13 years.

Backward model

Direct Group, a division of Bertelsmann, took a 40-percent stake of the Beijing 21st Century Book Chain Co in 2003 and formed the Beijing Bertelsmann 21st Century Books Chain Co Ltd.

The company blamed the failure on the venture's backward business model which no longer adapted to rapid market changes.

"The growth in online book sales and increasing competition in China contributed to our decision. The joint venture was not profitable," Yu added.

But eight bookstore chains in Shanghai will still be in operation as they are affiliated to the Shanghai Bertelsmann Culture Industry Co Ltd, which was jointly established with the China Science and Technology Book Company in 1995.

Members of the book club will not be affected greatly since mail order catalogues and BOL (Bertelsmann Online) are still accessible to the members.

Bertelsmann's revenue hit 20 billion euros (US$30.8 billion) worldwide last year. Direct Group contributes 1.2 billion euros to the total.

"Still, China is the smallest market for Direct Group. The decision will hardly affect Bertelsmann's strategy in China," Yu said.

China is one of three designated strategic growth markets globally for Bertelsmann. It also runs Arvato which provides media services.