Metro favors end to Media-Saturn China venture: sources

DUESSELDORF, Germany (Reuters) - German retailer Metro (MEOG.DE) is leaning towards scrapping the expansion of its Media-Saturn chain of consumer electronics stores in China, several people familiar with the matter told Reuters.

Metro signed a joint venture in 2010 with Taiwan-based Foxconn Technology (2354.TW) to bring Media-Saturn, Europe's largest chain of electricals stores, to China. There are seven test stores open in and around Shanghai.

There was a clear tendency on the Metro board towards withdrawing Media-Saturn from the country after the market proved tougher than expected, one of the sources said on Monday. No formal decision has yet been made by the joint venture, however.

Metro, which also runs cash-and-carry outlets, hypermarkets and department stores, had initially seen potential for more than 100 stores by 2015, but Chief Executive Olaf Koch played down expectations in 2012, saying in October that the market had turned out very differently to what had been expected.

Cut-throat price competition, especially from online players, has made life tough in China for a range of foreign retailers, from Tesco (TSCO.L) to Home Depot Inc (HD.N).

Metro's ambitions were dealt a further blow when German billionaire Erich Kellerhals, who founded the Media Markt chain that is now part of Media-Saturn, said he was pulling out of the China venture.

The seven Media-Saturn stores in China had sales of 100 million euros ($130 million) in the first nine months of 2012 but are heading for a loss of more than 40 million euros for the year.

It was a tough 2012 for Metro. A profit warning in October led to downgrades from ratings agencies Moody's and Standard & Poor's, while a slump in its share price on the back of weak trading meant that it lost its place in the Dax blue-chip index in September.

Metro declined to comment on Monday.

Its shares were down 0.3 percent at 22.18 euros at 1456 GMT, compared with a 0.6 percent drop in the wider European retail index .SXRP. ($1 = 0.7666 euros)

(Writing by Victoria Bryan; Editing by David Goodman)