Department Stores Re-invented

China Retail
Department Stores
Re-invented
March 2015
2014
was a challenging year again
Furthermore, China’s increased efforts to
in China, as many saw significantly falling
issuing pre-paid or gift cards have signifi-
for department store operators
sales and net profit declines. Fragile global
and domestic economies and intensified
competition from shopping malls, specialty
stores and online retailers were major
curb corruption and tighten its policy on
cantly affected the profitability of department stores, especially those targeting a
high-end clientele.
reasons for stores’ weak performances.
1
China Retail - Department Stores Re-invented
MARKET OVERVIEW
Department stores see lowest sales growth
among all retail formats; operators are wary
about new store openings
reports that total sales revenues for de-
partment stores reached 370.4 billion yuan
in 2013, up 13.9% year-on-year (yoy). The
growth rate increased by over 13 percentage
points (ppt) in 2013 compared to 2012 (see
Exhibit 1).
Exhibit 1: Total department store sales revenues,
2008-2013
400.0
350.0
YOY Growth
35.0%
29.8%
30.0%
300.0
250.0
200.0
18.4%
100.0
0.0
20.0%
13.9% 15.0%
150.0
50.0
25.0%
20.8%
6.9%
0.8%
2008 2009 2010 2011 2012 2013
10.0%
5.0%
0.0%
Source: National Bureau of Statistics, PRC
The latest figures published by the Ministry
of Commerce (MOFCOM) show that retail
sales growth for department stores in 1-3Q14
was 6.6%, the lowest for all retail formats
(see Exhibit 2).
2
Yoy growth (%)
Retail format
The National Bureau of Statistic (NBS)
Billion yuan
Exhibit 2: Retail sales growth for different retail
formats, 1-3Q14
1-3Q14
Department stores
6.6
Convenience stores
12.6
Supermarkets
11.5
Hypermarkets
7.1
Specialty stores
9.6
Professional stores
6.7
Total
10.5
Source: Ministry of Commerce, PRC
In April 2013, the China Chain Store &
Franchise Association (CCFA) released its
rankings of the top 50 department stores
in China by total sales (see Exhibit 3). Such
sales increased 9.6% yoy to reach 641.1
billion yuan in 2013; by contrast, the growth
rate for store numbers was 0.4% yoy,
indicating most department store operators
were wary about opening new stores for the
future. The top 10 department store operators
were all domestic players. Topping the list
was Shanghai Friendship Group, followed
by Dalian Dashang Group and Chongqing
Department Store.
China Retail - Department Stores Re-invented
Exhibit 3: Total sales of major department store operators in China
Ranking Ranking
2013
2012
Enterprise
Sales value in
2013
(million yuan)
yoy
change
Number
of stores
2013
yoy
change
*60,800.0
6.7%
45
-8.2%
Shanghai
Shanghai
Dalian,
Liaoning
Liaoning, Jilin,
Heilongjiang,
Henan, Sichuan,
Shandong
Place of origin
Major
footprints by
region
1
Shanghai Friendship
Group Incorporated
上海友誼集團股份有限公司
2
2
Dalian Dashang
Group Co., Ltd.
大商股份有限公司
*39,483.9
6.1%
200
-
3
3
Chongqing
Department Store Co., Ltd.
重慶百貨大樓股份有限公司
37,632.1
12.6%
292
1.4%
Chongqing
Chongqing,
Sichuan, Guizhou,
Hubei
4
4
Yingzuo Group
銀座集團
34,434.6
12.8%
179
11.2%
Jinan,
Shandong
Jinan,
Shandong
Shandong, Hebei,
Henan
5
5
Changchun
Eurasia Group Co., Ltd.
長春歐亞集團股份有限公司
28,278.3
17.1%
75
29.3%
Changchun, Jilin
6
6
Beijing Wangfujing
Department Store
(Group) Co., Ltd.
北京王府井百貨（集團）
股份有限公司
23,643.5
9.6%
29
3.6%
Beijing
7
24
Liqun Group Co., Ltd
(department store section)
利群集團股份有限公司
22,862.0
6.8%
580
-21.2%
8
7
Rainbow Department Store
Co., Ltd.
天虹商場股份有限公司
22,022.5
8.1%
62
5.1%
Shenzhen,
Guangdong
12
Zhenghua Department Store
Development Co., Ltd.
煙台市振華百貨集團
股份有限公司
21,964.0
15.2%
113
3.7%
Yantai,
Shandong
10
9
Jiangsu Wenfeng Great World
Chain Store
Development Co., Ltd.
文峰大世界連鎖發展
股份有限公司
20,716.8
6.3%
921
-7.4%
Nantong, Jiangsu
11
8
Parkson Retail Group Ltd.
北京百盛商業發展有限公司
*20,452.3
4.3%
58
20.8%
Malaysia
12
11
Hefei Department Store
Group Co., Ltd.
合肥百貨大樓集團股份有限公司
18,800.0
11.2%
190
-
13
10
Golden Eagle Retail
Group Ltd.
金鷹國際商貿集團
18,791.4
0.7%
27
-3.6%
Nanjing,
Jiangsu
Jiangsu, Anhui,
Yunnan,
Shanghai
14
13
Intime Department Store (Group)
Co., Ltd.
銀泰商業（集團）有限公司
18,165.1
11.4%
36
20.0%
Hangzhou,
Zhejiang
Beijing, Shanxi,
Hubei, Anhui,
Zhejiang
15
20
Wanda Department Store Co., Ltd.
萬達百貨有限公司
15,500.0
38.6%
75
-
16
-
Wei Bai Group
山東濰坊百貨集團股份有限公司
15,129.0
14.7%
570
14.2%
1
9
Qingdao,
Shandong
Hefei, Anhui
Dalian,
Liaoning
Weifang,
Shandong
Jilin
National
Shandong
Guangdong,
Jiangxi, Hunan,
Chengdu, Fujian,
Beijing , Zhejiang
Shandong
Shanghai, Jiangsu
National
Anhui
National
Shandong
3
China Retail - Department Stores Re-invented
4
Sales value in
2013
(million yuan)
yoy
change
Number
of stores
2013
yoy
change
Place of origin
Major
footprints by
region
New World Department Store
China Ltd.
新世界百貨中國有限公司
*14,800.0
14.7%
41
5.1%
Hong Kong
National
19
Zhengzhou Dennis
Department Store Co., Ltd.
鄭州丹尼斯集團
14,200.0
16.4%
181
25.7%
Zhengzhou,
Henan
Henan
19
18
Liaoning Xinglong
Big Family Business Group
遼寧興隆大家庭商業集團
14,098.1
12.6%
29
-3.3%
Shenyang,
Liaoning
Liaoning
20
15
Beijing Capital
Retailing Group
北京首商集團股份有限公司
14,076.9
2.0%
17
-
Beijing
Beijing
21
17
Beijing Caishikou
Department Store Co., Ltd.
北京菜市口股份有限公司
13,520.8
8.5%
16
6.7%
Beijing
Beijing
22
23
Guangzhou
Grandbuy Co., Ltd.
廣州市廣百股份有限公司
11,418.0
8.0%
29
-3.3%
Guangzhou,
Guangdong
Guangdong
23
16
Maoye International
Holdings Ltd.
茂業國際控股有限公司
11,374.4
2.8%
40
2.6%
Shenzhen,
Guangdong
Guangdong,
Chengdu
24
22
Anhui Commercial
Capital Co., Ltd.
安徽商之都股份有限公司
11,325.6
3.0%
72
-10.0%
Hefei, Anhui
Anhui
25
21
Shijiangzhuang
Beiguo Group
(department store part)
石家庄北國人百集團
有限責任公司(百貨部分)
11,303.6
16.4%
15
15.4%
Shijiazhuang,
Hebei
Hebei
26
26
Nanjing Central Emporium Group
Stocks Co., Ltd.
南京中央商場股份有限公司
8,788.0
8.8%
10
25.0%
Nanjing,
Jiangsu
Jiangsu,
Shandong, Henan,
Hubei
27
25
Hunan Friendship and
Apollo Co., Ltd.
湖南友誼阿波羅控股有限公司
7,881.9
5.9%
11
-
Changsha, Hunan
Changsha, Hunan
28
27
Yinchuan Department Store
銀川新華百貨商業集團
股份有限公司
*7,727.8
10.1%
210
10.5%
Yinchuan, Ningxia
Ningxia,
Qinghai, Gansu
29
28
Jinan Hualian
Commercial Group
濟南華聯商廈集團股份有限公司
7,152.7
17.0%
27
3.8%
Jinan,
Shandong
30
29
Wuhan Zhongnan
Commercial Group Co., Ltd.
武漢中商百貨連鎖有限責任公司
6,421.5
11.3%
9
-
Wuhan, Hubei
Hubei
31
32
Handan Sunshine
Department Store
(Group) Co., Ltd.
邯鄲市陽光百貨集團總公司
6,020.0
15.5%
170
28.8%
Handan, Hebei
Hebei
32
31
Charter Group Holdings Ltd.
卓展集團控股有限公司
*5,500.0
4.2%
4
-
Ranking
2013
Ranking
2012
17
14
18
Enterprise
Changchun, Jilin
Shandong
Beijing,
Liaoning, Jilin,
Heilongjiang
China Retail - Department Stores Re-invented
Sales value in
2013
(million yuan)
yoy
change
Number
of stores
2013
yoy
change
Beijing Cuiwei Plaza
Shopping Center
北京翠微大厦股份有限公司
5,276.3
-4.9%
5
-16.7%
35
Xinyulou Department Store Group
Co., Ltd.
信譽樓百貨集團有限公司
4,813.5
33.1%
16
6.7%
35
33
Guangzhou Friendship Group
Co., Ltd.
廣州友誼集團股份有限公司
4,769.4
-8.3%
6
-
36
34
Beijing Shunyi Guotai
Commercial Building
北京市順義國泰商業大廈
4,014.8
-13.1%
13
8.3%
Beijing
37
36
Xiongfeng Group Co., Ltd.
雄風集團有限公司
3,970.3
20.5%
150
4.9%
Zhuji,
Zhejiang
38
38
Nanjing Xinjiekou
Department Store Co., Ltd.
南京新街口百貨商店股份有限公司
*3,923.4
17.7%
3
-
Nanjing, Jiangsu
39
-
Inner Mongolia
Minzu Group
內蒙古民族商場
*3,454.5
4.7%
4
-
Hohhot ,
Inner Mongolia
40
-
Nanning Department Store
Co., Ltd.
南寧百貨大樓股份有限公司
*3,178.3
3.9%
17
88.9%
41
-
Beijing Urban- Rural Trade Central
Co., Ltd.
北京城鄉貿易中心股份有限公司
*2,878.7
9.4%
-
-
42
39
Shirble Department Store Holdings (China) Ltd.
深圳歲寶百貨有限公司
2,598.6
-0.9%
23
4.5%
Shenzhen,
Guangdong
43
-
Chengshang Group Co., Ltd.
成商集團股份有限公司
*2,588.2
3.1%
10
11.1%
Chengdu,
Sichuan
Sichuan
44
-
Hangzhou Jiebai Group Co., Ltd.
杭州解百集團股份有限公司
*2,456.5
-2.2%
4
-
Hangzhou,
Zhejiang
Zhejiang
45
-
Shanghai Xujiahui
Commercial Co., Ltd.
上海徐家匯商城股份有限公司
*2,455.3
0.2%
-
-
Shanghai
Shanghai
46
-
Qingdao Weekly Group
(Department Store part)
青島維客集團股份有限公司
2,418.2
13.3%
3
-
Qingdao,
Shandong
Shandong
47
-
Fujian Dongbai Group Co., Ltd.
福建東百集團股份有限公司
*2,383.0
-1.5%
-
-
Xiamen, Fujian
Fujian
48
-
Wuhan Zhongbai Group Co., Ltd.
武漢中百百貨有限責任公司
1,960.7
52.0%
9
12.5%
Wuhan, Hubei
Hubei
49
37
Jialeyuan Group
(Department Store part)
家樂園商貿有限公司
1,878.3
49.2%
18
80.0%
Beijing
Beijing
50
40
JiaHua Stores Holdings Ltd.
深圳市百佳華百貨有限公司
*1,800.0
-14.0%
9
-25.0%
Shenzhen,
Guangdong
641,103.3
9.6%
4,623
0.4%
Ranking
2013
Ranking
2012
33
30
34
Enterprise
Total sales of major 50 department store
operators in China
Major
footprints by
region
Place of origin
Beijing
Beijing
Huanghua, Hebei
Hebei
Guangzhou,
Guangdong
Guangdong
Beijing
Zhejiang, Anhui,
Chongqing
Jiangsu
Inner Mongolia
Nanning, Guangxi
Beijing
Guangxi
Beijing
Guangdong,
Hunan
Guangdong
-
Source: China Chain Store & Franchise Association, company websites; modified by Fung Business Intelligence Centre
*Note: Estimated figures
5
China Retail - Department Stores Re-invented
Store closures significant
Department store operators have suffered
cards and gift cards, which formed a major
sumer sentiment over recent years, as well as
anti-corruption policies came into effect.
from slower economic growth and weak conincreased competition from online retailers
and those in other retail formats. Moreover,
the government’s frugality campaigns and
measures to counter extravagance have had
significant impact on the sale of pre-paid
source of income for department store before
Such factors have severely affected department stores’ profitability. Rising store clo-
sures underlines their challenges, with sev-
eral operators closing their lower-performing
stores over the past year (see Exhibit 4).
Exhibit 4: Selected department stores closure in China, January 2014-January 2015
Department store
1,2
Balloon Department Store
寶萊百貨
3,4
Central Department Store
尚泰百貨
5
Mopark Department Store
摩登百貨
6
Nanning Department Store
南寧百貨
7
Simgo Department Store
新光百貨
8,9
Parkson Department Store
百盛百貨
County of origin
City
Branch
Closing month
Opening year
China
Qingdao
Cangzhou
June 2014
2011
Shenyang
MixCity
June 2014
2011
China
Zengcheng
Xintang
May 2014
2010
China
Nanning
Jinhu
May 2014
2005
China
Foshan
Nanhai
May 2014
2013
Beijing
Dongsihuan
July 2014
2007
Changzhou
Zhengfang Jingcheng
November 2014
2011
Xizhimen
December 2014
Wangjing
April 2014
Thailand
Malaysia
Hangzhou
Jinan
Changzhou
Ito Yokado
10,11
Department Store
華堂商場
Japan
Beijing
Wangfujing
12
Department Store
王府井百貨
China
Zhanjiang
Zhongdu
13,14
Department Store
中都百貨
China
Hangzhou
New Century
15
Department Store
新世紀百貨
China
16,17
Novo Department Store
NOVO百貨
18
Rainbow Department Store
天虹商場
19
Spring Plaza
春天廣場
MixCity
Quancheng
Xinbei
June 2014
May 2014
May 2014
2011
2011
2012
2012
2005
2009
Zhanjiang
July 2014
2012
Qingchun
June 2014
2009
Anji
June 2014
2008
Chongqing
Kairui
October 2014
2005
Guangzhou
Zhangjiang Plaza
Tianfu
December 2014
2013
China
Hangzhou
Xiaoshan
October 2014
2009
China
Qingdao
Shandong Road
August 2014
2006
Hong Kong
Chengdu
Beiyuan
June 2014
August 2014
Source: Internet sources; compiled by Fung Business Intelligence Centre
6
Jimo
Linping
June 2014
June 2014
2006
2003
2010
China Retail - Department Stores Re-invented
Labour accounts for almost
60% of total costs
As shown in Exhibit 5, labour expenditures
accounted for 59.7% of total operating costs
among surveyed department stores in 2013,
while rentals accounted for 25.7% and
utilities represented 14.6%, according to a
survey conducted by CCFA and Deloitte.
Labour contributed the largest increase at
18% yoy, compared to rentals (9.4% yoy)
Exhibit 5: Cost structures for surveyed
department stores, 2012-2013
100.0%
90.0%
80.0%
70.0%
er pace in 2013, 7.9 ppt lower than in 2012.
14.6%
56.6%
59.7%
26.3%
25.7%
2012
2013
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
and utilities (-4.3% yoy) in 2013.
It is notable that rentals increased at a slow-
17.1%
Utility fees
Labour costs
Rentals
Source: China Chain Store & Franchise Association, Deloitte
That was due, in part, to the slowing pace
of expansion among surveyed department
stores, although some actually increased the
number of their self-owned properties.
Million yuan
400
350
300
250
200
150
100
50
0
329.2
388.3
152.9 167.3
Rentals
2012
99.5
Labour costs
95.2
Utility fees
2013
Source: China Chain Store & Franchise Association, Deloitte
7
China Retail - Department Stores Re-invented
Department stores generate their largest
income from concessionary sales
Most department stores in China adopt a
concessionary business model. They lease
designated store areas to concessionaires and
receive a percentage of total sales proceeds
from these arrangements, representing
their major source of income. Other sourc-
es include merchandise direct sales, rental
incomes and agency fees.
Exhibit 6 shows the proportion of concessionary and merchandise direct sales as against
total merchandise sales for selected department stores.
Exhibit 6: The proportion of concessionary and
direct sales of total merchandise for selected
department stores, 1H2014
100.0%
90.0%
80.0%
89.9%
88.4%
94.9%
90.9%
60.0%
efficient way to expand their networks and
increase market share. In 2014, M&A activity
in the department store sector was particularly high.
A very significant purchasing deal was Nan-
jing Xinjiekou Department Store’s acquisition
of British department store chain House
of Fraser; Nanjing Xinjiekou is a subsidiary
of San Power Group. In April 2014, Nanjing
Xinjiekou bought an 89% stake in Highland
Group Holdings Ltd., the owner of House of
Fraser. The deal is expected to enhance Nan-
jing Xinjiekou’s competencies so it can leverage on House of Fraser’s operational model.
The deal also enables Nanjing Xinjiekou to
own and operate House of Fraser’s unique
20
brands in China .
sector.
40.0%
30.0%
20.0%
10.1%
Parkson
11.6%
Intime
5.1%
9.1%
New World* Golden Eagle
Concessionary sales
Direct sales
Source: Parkson, Intime, Golden Eagle 1H14 financial reports,
New World FY2014 annual report; compiled by Fung Business
Intelligence Centre
*Note: New World Department Store’s figures are for FY2014
8
ers and acquisitions (M&A) offer a fast and
M&A deals in China’s department store
50.0%
0.0%
For many department store operators, merg-
Exhibit 7 shows the overall map of recent
70.0%
10.0%
Overseas M&A deals on the rise
China Retail - Department Stores Re-invented
Exhibit 7: Major M&A deals in China’s department store sector, January 2014- January 2015
Date
Bidder company
March 2014
Alibaba Group
Holding Limited
Bidder
company
country
21
China
Bidder
company
industry
Target
company
E-commerce
Intime Retail
Target
company
country
Deal value
Note
HK$ 5.37
billion
25%
equity
interest
UK
480 million
pounds
89% stake
China
1.58 billion
yuan
100%
share
China
2.47 billion
yuan
100%
stake
China
US$ 7
million
59% stake
China
Group
阿里巴巴集團
銀泰商業(集團)
有限公司
April 2014
SanPower Group 三胞集團;
China
Department
store
House of Fraser
China
Retail
Nancheng
Nanjing Xinjiekou
22
Department Store
南京新街口百貨商店
May 2014
Better-Life Commercial
23
Department
Chain Share Co.
August 2014
步步高商業連鎖
Store
股份有限公司
南城百貨
Beijing Cuiwei Tower
24
China
Co., Ltd
Department
store
MixCity Beijing
Modern
Plaza
北京翠微大廈股份有限公司
北京當代商城;
Beijing
Ganjiakou Plaza
北京甘家口大厦
January 2015
SanPower Group 三胞集團;
China
Nanjing Xinjiekou
Department Store
Department
store
Meici.com
美西時尚
25
南京新街口百貨商店
Source: Internet sources, compiled by Fung Business Intelligence Centre
9
China Retail - Department Stores Re-invented
HOT TOPICS IN 2014-2015
#1. “E-commerce”
Faced with losing customers to online re-
store – either by setting up a standalone
store players have stepped into the e-com-
ty online platform. Some retailers, such as
tailers, an increasing number of department
merce space. Currently, 29 of the Top 50
department store operators have established
online presences (see Exhibit 8). Two typical
approaches are adopted to establish an online
website or by opening a store on a third-parWangfujing Department Store, adopt a dual
approach by setting up a wholly-owned
transactional website, as well as by launching a store on Tmall at the same time.
Exhibit 8: Online stores of selected department stores
Enterprise
Shanghai Friendship Group
Incorporated Company
上海友誼集團股份有限公司
Dalian Dashang Group Co., Ltd.
大商股份有限公司
Chongqing Department Store
Co., Ltd.
重慶百貨大樓股份有限公司
Changchun Eurasia Group Co., Ltd.
長春歐亞集團股份有限公司
Beijing Wangfujing Department
Store (Group) Co., Ltd.
北京王府井百貨(集團)股份有限公司
Liqun Group Co., Ltd
(department store section)
利群集團股份有限公司
Rainbow Department Store Co., Ltd.
天虹商場股份有限公司
Zhenghua Department Store
Development Co., Ltd.
煙台市振華百貨集團股份有限公司
Jiangsu Wenfeng Great World
Chain Store Development Co., Ltd.
文峰大世界連鎖發展股份有限公司
Parkson Retail Group Ltd.
北京百盛商業發展有限公司
Intime Department Store
(Group) Co., Ltd.
銀泰商業(集團)有限公司
Wei Bai Group
山東濰坊百貨集團股份有限公司
10
Standalone transactional website
Store on third-party online platform
http://www.blzoom.com/
nil
http://www.51tiangou.com/
nil
http://www.cbmall.cn/
nil
http://www.oysd.cn/
nil
http://www.wangfujing.com/
http://wangfujing.tmall.com/
http://www.liqunshop.com/
nil
http://www.tianhong.cn/
nil
http://eshop.zhenshang.com/
nil
http://www.iwenfeng.com/
nil
http://www.parkson.com.cn/
nil
http://www.yintai.com/
http://yintaibaihuo.tmall.com/
http://www.zbasw.com/
nil
China Retail - Department Stores Re-invented
Enterprise
New World Department Store
China Ltd.
新世界百貨中國有限公司
Liaoning Xinglong Big Family
Business Group
遼寧興隆大家庭商業集團
Beijing Capital Retailing Group
北京首商集團股份有限公司
Beijing Caishikou Department
Store Co., Ltd.
北京菜市口股份有限公司
Guangzhou Grandbuy Co., Ltd.
廣州市廣百股份有限公司
Standalone transactional website
Store on third-party online platform
http://buy.xinbaigo.com/
nil
http://www.xlgoo.net/
nil
http://www.igo5.com/
nil
nil
http://caibai.tmall.com/
http://caibai.jd.com/
http://www.gbhui.com/
nil
http://www.ruyigou.cn/
nil
http://www.600280.com/
nil
Shijiangzhuang Beiguo Group
(department store part)
石家庄北國人百集團有限責任公司
(百貨部分)
Nanjing Central Emporium Group
Stocks Co., Ltd.
南京中央商場股份有限公司
Hunan Friendship and
Apollo Co., Ltd.
湖南友誼阿波羅控股有限公司
Jinan Hualian Commercial Group
濟南華聯商廈集團股份有限公司
Handan Sunshine Department
Store (Group) Co., Ltd.
邯鄲市陽光百貨集團總公司
Guangzhou Friendship Group
Co., Ltd.
廣州友誼集團股份有限公司
Xiongfeng Group Co., Ltd.
雄風集團有限公司
Nanning Department Store
Co., Ltd.
南寧百貨大樓股份有限公司
Shanghai Xujiahui
Commercial Co., Ltd.
上海徐家匯商城股份有限公司
Wuhan Zhongbai Group Co., Ltd.
武漢中百百貨有限責任公司
Jialeyuan Group
(Department Store part)
家樂園商貿有限公司
JiaHua Stores Holdings Ltd.
深圳市百佳華百貨有限公司
http://www.tepin.com/
(Online outlet platform)
nil
http://www.hlyigou.com/
nil
http://www.ygttg.com/
nil
http://mall.cgzfs.com/
nil
nil
http://hopeful.tmall.com/
http://www.mmgo.cn/
nil
http://www.xjh.com/
nil
http://www.zon100.com/
nil
http://www.subuy.com/
nil
http://go.szbjh.com/
nil
Source: Company websites; compiled by Fung Business Intelligence Centre
Note: As of February 2015
11
China Retail - Department Stores Re-invented
For department store operators to develop
their own transactional websites gives them
absolute control over their online businesses
and also helps strengthen their brand image.
However, there are challenges. First, they
need to deploy a new set of strategies: Running an online store is completely different
from operating an offline one. Operators need
to re-consider their targeted consumers,
27
devices for shopping, up 63.5% yoy . Mobile
merchandise mix as well as pricing strategies.
commerce (m-commerce) is and will continue
operators do not have a powerful and
e-commerce. In view of this, an increasing
Second, most traditional department store
transparent database to support their online
operations. Finally, it requires large amounts
of invested capital to operate and promote
online stores and the payback period is often
lengthy, in addition to the time cost involved.
Alternatively, operators can set up stores
on third-party online platforms. The major
advantage is that they can benefit from the
huge traffic flows that these online platforms
generate. However, stores have less control
over online operations and need to follow
rules set by the third-party platforms. Such
to be the driving force behind the growth of
number of department store players have
launched mobile apps. Some support mobile
shopping, while others are mainly for marketing.
Mobile payment plays a key role in facilitat-
ing the mobile shopping experience. Some department stores have partnered with leading
e-commerce companies, such as Alibaba and
Tencent, to offer mobile payment services.
Here, the two most popular payment tools are
the Alipay and WeChat.
platforms also charge a variety of service fees
and commissions.
#2. “M-commerce”
Mobile shopping has been gaining mo-
mentum among Chinese consumers, with
the total number of mobile Internet users
reaching 557 million by the end of December 2014, accounting for 85.8% of total
26
Internet users . Up to December, there were
nearly 236 million people using their mobile
12
#3. “Social media”
The increasing popularity of social media
in China has prompted many department
stores to adapt their operational strategies.
Many have leveraged social media in varying
China Retail - Department Stores Re-invented
degrees to reach and engage with customers.
reward points or help other members to
ular and influential social media platforms.
to offset spending in both online and offline
Weibo and WeChat are by far the most pop-
Almost all major department stores have set
up Weibo and WeChat accounts. Some even
have separate accounts for different branches. Social media, when used correctly, can
help department stores communicate with
customers in an interactive and direct way.
For example, customers can contact Rainbow
Department Store’s customer service team
via its WeChat account and can receive an
28
immediate response from them .
Over recent years, some department store
players have put increasing emphasis on
social media marketing strategies. They con-
stantly inform consumers about the arrival of
new products and exclusive promotions via
their social media platforms. Intime Depart-
accumulate these, while points may be used
29
stores. According to Morgan Stanley , the
programme resulted in a two-fold increase in
spending among young female consumers. It
was estimated that sales generated from this
contributed to over 5% of Intime Department
Store’s total sales, up from 2% in 2013.
Having said that, not all department stores
are making the most of their social media
accounts. While some department stores
constantly send to customers their latest
sales promotions, product updates or fashion
trends via social media networks, others
barely provide updated information and
their social media accounts may be idle
for months.
ment Store is an example. In May 2013 the
company launched a programme called “guimiquan” (閨蜜圈) or “circle of close friends”
on WeChat. The “guimiquan” is normally
composed of between three and six members,
usually close friends or family; members
can earn double reward points when they
purchase in the Intime Department Store,
both online and offline. They can also share
#4. “O2O”
O2O is not just a trend for China’s depart-
ment store operators, but a core strategy that
they need to adopt. Indeed, after building
multiple sales channels, an increasing
number of department stores have started
to implement O2O strategies. These involve
mainly integrating their offline, online and
mobile channels. They hope to create a closed
loop between digital and physical sales and
provide consumers with a consistent shop-
ping experience across all channels. Exhibit
9 shows the O2O initiatives undertaken by
selected stores.
13
M
n
bas
ed s
ervic
Loc
atio
king
boo
taur
ants
es
Res
card
VIP
Cur
rent
in-s
to
r
e
prom
otio
ns
Link
ed t
o
stor
e
form
Own
tran
sac
t
io
nal
web
site
Source: Company websites; field trips; expert interviews; compiled by Fung Business Intelligence Centre
Note: As of February 2015
Guangzhou
Friendship
Department Store
廣州友誼商場
New World
Department Store
新世界百貨
Intime
Department Store
銀泰百貨
Rainbow
Department Store
天虹商場
Wangfujing
Department Store
王府井百貨
aym
e
nt
obil
ep
Department Store
alle
t
ile w
Mob
Transactional
functions
WeChat
g
Social media
Weibo
WiF
i
ing
Value-added services
ketin
g
Mar
plat
arty
Thir
d-p
opp
e sh
Mob
il
Offline store
t
Mobile app
ketin
Mar
of th
e
r pla
n
Floo
men
pay
Mob
ile
very
Online website
O2O initiatives
Inte
g
offlin rated
on
e
m
emb line an
ersh d
ip
Exhibit 9: Selected department stores’ O2O initiatives
deli
Hom
e
up
pick
tore
In-s
14
Launches WeChat store
Provides store pickup services for Rainbow Department Store
•
convenience store; customers can use their smartphone to scan the QR code to access the website
Teams up with Tencent to collect and analyse members shopping behaviour in order to create more personalised marketing campaigns
Supports mobile wallet – NWDS T-VIP Card
Offers free WiFi
Offers free WiFi
Launches WeChat store
In-store initiatives
•
•
Mobile initiatives
•
•
•
In-store initiatives
Teams up with Alibaba to collect and analyse members shopping behaviour in order to create more personalised marketing campaigns
Supports mobile wallet – Yintaibao
Supports mobile payments - Alipay
Offers free WiFi
34
Quick Response (QR) codes of selected products that are sold on Rainbow Department Store’s website are displayed on the wall in the
•
online store
Provides touch-screen devices which can direct customers to Rainbow Department Store’s
•
At Rainbow’s convenience store:
Plans to introduce virtual mirrors in its stores
Supports mobile payments - WeChat payment
Offers free WiFi
In-store initiatives
•
•
•
•
•
•
•
•
In-store initiatives
•
33
companies (in Shenzhen only) and Guoda Drug Stores (in Shenzhen only)
32
Store, delivery lockers located in over 300 selected residential areas (size: 55cm*55cm*55cm; in Shenzhen only), 14 property management
Consumers can pick up online orders at any Rainbow Department Stores (in Shenzhen only), convenient stores owned by Rainbow Department
branches)
31
Integrated store inventory management system with suppliers’ inventory management systems at two stores (Wangfujing and Shuang’an
Mobile initiatives
•
30
Supports mobile payments - WeChat payment and Alipay
Offers free WiFi
Order online, collect offline
•
•
•
In-store initiatives
Major O2O initiatives
Source: Company websites, field trips, expert interviews; compiled by Fung Business Intelligence Centre
廣州友誼商場
Guangzhou Friendship Department Store
新世界百貨
New World Department Store
銀泰百貨
Intime Department Store
天虹商場
Rainbow Department Store
王府井百貨
Wangfujing Department Store
Department store
China Retail - Department Stores Re-invented
15
China Retail - Department Stores Re-invented
In short, department store operators in
China have taken a variety of approaches to
launch their O2O initiatives, albeit not truly
Offering in-store mobile payment and
wallet services
seamlessly across all shopping channels. The
Mobile technology is a key enabler for O2O
gies adopted by stores.
store operators have partnered with leading
following are the most common O2O strate-
Launching online stores and mobile apps;
improving store awareness through digital channels
While some department store operators have
set up online stores and mobile apps to tap
rapidly growing e-commerce and m-com-
merce users, many are actively promoting
and communicating with consumers through
social media networks.
development. More and more department
e-commerce companies, such as Alibaba and
Tencent, to offer mobile payment and wallet
services. Some common mobile payment
tools used by department store operators
include the Alipay and WeChat payment
schemes. New World Department Store is
an example. The company has teamed with
Tencent to launch a NWDS T-VIP card, a
WeChat-based virtual prepaid card. Upon
successful activation of the NWDS T-VIP
card, users can shop without a physical card,
and can receive real-time promotional information and check account balances through
their WeChat accounts. Users can also top up
35
virtual cards via WeChat .
Creating a shared customer database and
loyalty programme
A single, integrated customer database and
loyalty programme allows department store
operators to capture consumers’ shopping
behaviour across different channels. Increasing numbers of department stores have been
working on this initiative. Rainbow Department Store and Intime Department Store
are pioneers in integrating their online and
offline membership programmes.
16
China Retail - Department Stores Re-invented
Offering more pick-up points,
Different online and
Some department store operators have made
To avoid competition between their online
pick the purchased items up in a physical
ment store players have offered different
and supporting product returns
it possible for customers to buy online and
store. In addition to offering pick-up services
at its physical outlets, Rainbow Depart-
ment Store, for instance, has expanded such
services, allowing customers to also pick up
their online purchases from its convenience
36
store outlets in Shenzhen .
offline product offerings
platforms and physical stores, some departproducts for online and offline outlets,
sometimes even targeting different customer groups. For example, products available
on Intime Department Store’s online site
are largely different from those available
at physical outlets. The physical stores sell
relatively high-priced products targeting
mid- to high- end customers, while its online
site sells cheaper products targeting the mass
market. The overlap rate between Intime
Department Stores’ online and offline assortment is reportedly lower than 50%.
Source: http://news.sina.com.cn/o/2014-12-17/032831294455.shtml
#5. “Retail innovations and Big Data”
Integrating back-end operation
To capture increasingly tech-savvy O2O
Some department store operators have inte-
adopted retail technologies to improve the
grated their back-end operations and systems
such as inventory, warehousing and logistics
management systems. Beijing Wangfujing
Department Store (Group) is a case in point.
The company has integrated its store inventory system with those provided by suppliers; this has undergone trials in two of its
department stores - Wangfujing Department
Store (Wangfujing branch) and Shuangan
37
Department Store .
shoppers, a larger number of operators have
in-store experience. More operators have
turned to launching their own mobile apps
with the aim of creating location-based and
in-store navigational services; free WiFi is
often provided and customers can receive
customised mobile coupons and promotional
materials in-store through their mobile apps.
Some operators, such as Wangfujing Department Store, have launched mobile apps with
geo-locational functionality; customers can
17
China Retail - Department Stores Re-invented
Data analytics is a further key enabler in O2O
developments. State-of-the art analytic tools
allow retailers to grasp and predict consumer
preferences and needs, at all touch points –
from online purchases to shopping journeys
at offline stores. In China, it is quite common
for department store operators to partner
with e-commerce companies in order to
carry out data analysis. For example, Intime
Department Store formed a partnership with
Alibaba in June 2014 to work together on data
40
mining and facilitate their O2O initiatives .
By leveraging Alibaba’s huge advantage in
generating and manipulating customer data,
Intime Department Store can better understand customers and create more person-
alised marketing campaigns. The numbers
of Intime Department Store members have
use apps to locate themselves and the brands
they are looking for inside the store. Another
reportedly increased from one million to five
million in a matter of months.
case is Intime Department Store. In September 2014, the company announced that it
would trial BaiduEye, a wearable device in38
vented by Baidu , in its outlets. When wear-
ing BaiduEye at Intime Department Store,
customers are able to obtain detailed infor-
mation of the products they are interested in
via the earphone attached to the BaiduEye
Without doubt, enhancing the customer
BaiduEye can also guide shoppers to the loca-
partment store operators. O2O initiatives and
device as well as though their smartphones;
tion of their preferred brands. Furthermore,
BaiduEye is equipped with a price comparison
function; consumers can weigh up prices
from other retailers before making a
39
purchase . Other retail technologies trialed
by department stores to enhance the in-
store experience include 3D virtual dressing
mirrors, touch-screen information kiosks and
digital walls, among other innovations.
18
#6. “Shopping experience,
lifestyle experience”
shopping experience is a central focus for deretail innovations mentioned above all aim
to provide customers with a more pleasant
shopping journey. In tandem, some operators
are keen to turn their stores into “lifestyle”
outlets – with more restaurants, leisure and
entertainment features that include cine-
mas, kids’ play areas, spas and exhibitions.
To provide customers with a unique and
China Retail - Department Stores Re-invented
personalised “lifestyle” experience, stores
retail formats, such as shopping malls, conve-
with tenants to offer customers a variety of
malls are especially favoured by store oper-
such as Taifu Department Store have teamed
value added-services; these include personal
styling, home catering and home cleaning, to
41
mention a few .
nience stores and discount outlets. Shopping
ators as they provide one-stop shopping and
recreation services under one roof, and are
able to drive customer footfall. An increasing
number of players have started to step into
this lucrative segment and develop their own
malls. For example, Better Life Department
#7. “Tapping other retail formats”
Store is reportedly to open a shopping mall,
Better Life-Meixi Plaza, in Chengsha city, Hu-
Competition in China’s department store
sector is fierce, and many department store
operators are seeking to diversify their
income streams. Some have tapped other
nan Province in September 2015. The compa-
ny plans to have over 40 more shopping malls
42
in China by 2020 . Other recent examples are
listed in Exhibit 10.
Exhibit 10: Selected department stores that have tapped into the shopping mall sector
Department store
Selected shopping mall project
Location
Intime
Department Store
銀泰百貨
Intime City
Zhejiang:
Fenghua, Hangzhou, Haining, Huzhou, Linhai,
Wenling, Shaoxing
43
Hebei:
Tangshan, Beilun, Zibo, Hefei
Hubei:
Wuhan, Wuhu
Guangxi:
Liuzhou
Rainbow
Department Store
天虹商場
44, 45,46
Rainbow Shopping Centre
Zhejiang:
Hangzhou
Guangdong:
Shenzhen
Jiangxi:
Tanxin
47
Grandbuy
Department Store
廣百百貨
Grandbuy Sunny Mall
Haiya
Department Store
海雅百貨
Haiya Mega Mall
Better Life
Department Store
步步高商場
BBG Plaza
48
49
Guangdong:
Zhuhai
Guangdong:
Shenzhen
Hunan:
Xiangtan, Jishou, Liuzhou, Changsha
Source: Company websites; compiled by Fung Business Intelligence Centre
Note: As of February 2015
19
China Retail - Department Stores Re-invented
Convenience stores provide another popular
retail format that has attracted the atten-
tion of department store operators. Rainbow
Department Store has opened a number of
convenience stores in Shenzhen to provide
pick-up services for online purchases; these
are made in Rainbow Department Store
outlets as well as its higher-end Dreams-on
Department Store.
Some department store operators have ven-
tured into other business sectors such as food
distribution rights direct from brand owners.
logistics, finance, hotels and entertainment.
secured exclusive distribution rights from
and beverage (F&B), commercial property,
One latest example is Parkson Department
For example, Parkson Department Store has
51
fast fashion brand, Mango . The department
Store: The company is reportedly to set up a
store operator plans to open between 100 and
Entertainment Group, a F&B and entertain-
years. Another case is Golden Eagle Depart-
joint-venture (JV) with AUM Hospitality &
ment company in Malaysia, to start a F&B
50
business in China .
500 Mango stores in China over the next five
ment Store. The retailer has formed JVs with
multiple entities, such as Taiwan-based fast
fashion retailer iROO, and Pour La Victoire,
a New York city-based shoes, handbags and
accessories retailer, giving the store the right
to bring in their brands to Parkson outlets in
52
China . Furthermore, the company an-
nounced in April 2014 that it has acquired a
60% stake in Skinmint, a US fashion distribu53
tor of contemporary specialty brands .
#8. “Direct sales and private labels”
Most department stores in China have been
operating under the concessionary model for
years; they also understand the drawbacks of
this model and have tried to develop a more
sustainable approach. An increasing number
of department stores have started to engage
in merchandise direct sales, by obtaining
20
It is noteworthy that regional department
store operators tend to engage increasingly
in merchandise direct sales when compared
to their national counterparts. In some case,
the proportion of merchandise direct sales
can reach 100%. Hebei Xinyulou Department Store is a case in point. Leveraging
its strong local networks and long-standing relationship with suppliers, Xinyulou
purchases all of its products directly from
54
suppliers .
China Retail - Department Stores Re-invented
On the other hand, some department store
accounted for less than 2% of revenues for
selves by launching private labels. Exhibit
lower than the 30-50% for retailers in devel-
operators have sought to differentiate them11 lists some of the private label brands
launched by selected department store players. But the development of private labels in
China is still at a nascent stage. According
to a survey conducted by CCFA and Fung
Business Intelligence Centre, private labels
surveyed department store operators, much
oped markets. Lack of professional in-house
buyers, huge capital outlays, resistance from
staff at different levels and inexperienced
management are major reasons for the big
differences.
Exhibit 11: Private labels of selected department stores
Department store
55
Intime Department Store
銀泰百貨
56
New World Department Store
新世界百貨
57
Ito Yokado Department Store
華堂商場
Wangfujing Department Store
58
王府井百貨
Golden Eagle Department Store
金鷹百貨
59
Private label
Product category
Just Intime
Women’s apparel
LOL (Love Original Life)
Homeware
pbi
Apparel
IYB
Homeware
FIRST WERT
Men’s apparel
Aquila D’oro
Men’s apparel
IVREA
Men’s apparel
LISALEN
Women’s apparel
WONDERFUL LIFE
Homeware
Antonghui
Kids’ apparel
Source: Company websites and news reports; compiled by Fung Business Intelligence Centre
21
China Retail - Department Stores Re-invented
CONCLUSIONS
It is true that more and more consumers now
stores to do most of their shopping. For de-
and specialty stores. Faced with increasing
to take the in-store experience to a different
choose to shop online, or in shopping malls
competition from retailers in other segments,
together with the growing sophistication
and changing needs of Chinese consumers,
department store operators need to constantly innovate and improve business practices.
Those who understand their customers,
leverage technology to evolve the customer
experience and seek to differentiate themselves have an opportunity to thrive.
Digital drives foot traffic: O2O is the solution
Chinese consumers today are “digital savvy”
and highly connected. They also actively
engage in social media. Webrooming is common. Before they buy a product, consumers
often seek product information or peer feedback via social networking. They also check
prices from different retailers to find the best
deals. Department store operators have to
make the most of this digital environment to
level. The key is to create the best shopping
experience possible for consumers - from
store display to customer services; from offering unique products and services to seamlessly integrating different sales channels.
Leverage data analytics
In this new digital world, it is crucial for
department store operators to leverage
data and analytics to track customers’
needs and shopping preferences, as well as
offer customised promotions, products and
services. But operators should be mindful
of data “flooding”. It is not easy to derive
meaningful insights from large amounts
of data. Those which are able to turn their
data into actionable insights have a better
chance of success.
succeed. Stores need to utilise the most ad-
Back to basics: the right merchandise mix
and mobile platforms and social networking
Last but not least, there is a fundamental
tomers. They also need to consider partner-
ators should never overlook – merchandising.
vanced technologies, build their own online
websites in order to attract and engage cus-
ships with Internet companies like Alibaba or
Tencent to launch a range of O2O strategies.
Creating an online “buzz” helps people know
what is happening at stores, which is wholly
desirable.
Shift from “providing a consumer location”
to “providing a consumer experience”
Although an increasing number of consumers
like to shop online, most still go to physical
22
partment store operators, a critical priority is
part of retailing that department store operDepartment stores in China have long been
criticised for offering very similar tenant and
product mixes, due to widespread adoption of
the concessionary model. Indeed, a growing
number of department store operators have
sought to differentiate themselves by engaging in merchandise direct sales and launching
private labels. However, these strategies are
still at a nascent stage of development and
will take time to bear fruit.
China Retail - Department Stores Re-invented
Endnotes
1
17
“Balloon Department Store closes its Cangzhou
branch.”20 May, 2015. Fang.com. http://news.qd.fang.
com/2014-05-20/12823385_all.html
“Novo Department Store to close store in Chengdu.” 29 December, 2014. Ebrun. http://www.ebrun.
com/20141229/119645.shtml
“Balloon Department Store to close its Jimo branch.” 21
May, 2015. Winshang. http://news.winshang.com/news247321.html
3
“Rainbow Department Store’s Xiaoshan branch
continues to make a loss; plans to close in October.”
22 August, 2014. Sina. http://zj.sina.com.cn/fashion/
wanggo/2014-08-22/216886_2.html
4
“Spring Plaza closes its Shandong road branch.”
1 September, 2014. Focus. http://qd.focus.cn/
news/2014-09-01/5468028.html
5
“Sanpower Group website.” (accessed 26 February
2014). http://www.sanpowergroup.com/content/details_44_1997.html
2
“Central Department Store to close its Shenyang branch
in June.” 10 May, 2014. Linkshop. http://www.linkshop.com.
cn/web/archives/2014/288741.shtml
“Central Department Store to leave Hangzhou.”17 September, 2014. Linkshop. http://www.linkshop.com.cn/web/
archives/2014/301231.shtml
“Simgo Department Store to close its Nanhai Branch;
MoPark Department Store to close its Xintang branch.”
15 May, 2014. Guangzhou Daily. http://gzdaily.dayoo.com/
html/2014-05/15/content_2628173.htm
6
“Nanning Department Store is unable to continues
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China Retail - Department Stores Re-invented
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