China’s department stores losing out to e-commerce, higher costs; Retailing specialists said many department stores are being used purely as “fitting rooms” as shoppers have taken to trying on clothes at the store and then placing their orders online to save money

China’s department stores losing out to e-commerce, higher costs

Staff Reporter,  2013-04-17

Department stores in China have been under increasing pressure from rising rent and labor costs as well as greater competition from online retailers.

Department stores reported a total of 228.2 billion yuan (US$36.8 billion) in sales in 2012, up 8.92% from 2011, a rate far lower than the average annual growth rate of 16.5% recorded between 2006 and 2011, according to the China Commerce Association for General Merchandise.

Retailing specialists in China said local department stores were currently reporting net profits of only 2%-3% due to rising labor and rental costs. Labor costs have been increasing at a rate of over 10% annually, while rent has jumped over 10-fold during the past eight years.

Increased competition from e-commerce websites has also contributed to the slide.

Retailing specialists said many department stores are being used purely as “fitting rooms” as shoppers have taken to trying on clothes at the store and then placing their orders online to save money.E-commerce site dangdang.com recorded more than 50 million yuan (US$8.08 million) in revenue during a recent two-day sale. That compares with a one-day sale averaging 7 million yuan (US$1.13 million) recorded at a medium-sized department store during the Lunar New Year Holiday in early February.

Retailing specialists said traditional department stores are now facing an era of marginal growth in profits and that transforming their marketing and operational models is imperative.

Ganjiakou Tower, a shopping complex in western Beijing, launched a smartphone application that allowed shoppers to check on goods, prices and promotional events.

“We have shifted from the traditional marketing channel of print media — newspapers, posters and advertising — to mobile phones. The new model is both eco-friendly and convenient,” said Han Jianguo, general manager of the shopping center.

A department store operated by the Beijing Hualian Group said it had sought to reinforce certain niche categories of products that better represent the advantages of traditional retailers.

“We have tried to offer better services in the fields of cosmetics, jewelry and dining, categories that online commerce can hardly replace,” a company executive said.

Beijing Hualian Group and the Hong Kong-based New World Department Store China, on the other hand, are sending fashion-savvy purchasers to scour for goods that have not been sourced from established brands. The traditional model of featuring famous brands has homogenized stores and intensified competition, according to retailing specialists.

By contrast, having their own purchasers allows department stores greater freedom in pricing and the possibility of greater profits, they added.

Another added advantage is that the introduction of certain brands, not from established design houses but reflecting the latest fashion trends, would help bring in customers and build store reputation by word-of-mouth, they said.