To Sell or Not to Sell

by+Alex+Liu

Without warning on July 20， 2015， Wanda， one of Chinas largest commercial real estate companies， shut down a Wanda department store in Kuancheng District， Changchun， the provincial seat of Jilin – another physical department store bit the dust. Wanda planned to shut down more than 40 franchise stores after suffering heavy losses in many Chinese cities including Jinan， Tangshan， Jiangmen， Wenzhou， Shenyang， and Jingzhou.

As a matter of fact， many department store chains operating in China such as Parkson， Ito Yokado， and Marks & Spencer are “slimming” by shutting down their weaker outlets across the country， inspiring the question： Is traditional retail merchandising doomed to the fate of brick-and-mortar bookstores as the next fading industry？

Closed Shops

This year， China has seen the shutdown of many department stores. On March 31， for example， Parkson Retail Group， one of the first foreign-funded retail giants in the country， shut down its only location in Tianjin after closing one on East 4th Ring Road in Beijing.

The same thing happened to Ito Yokado from Japan， which shut down five stores in Jinsong， Wangjing， Beiyuan， Xizhimen， and Youanmen successively， all in Beijing， and Marks & Spencer from Britain， which announced plans to shut down five franchise stores in Shanghai by the end of August 2015.

Statistics from China Commerce Association for General Merchandise （CCAGM） testify to the fact that since 2012， the country has experienced a wave of shutdowns in its retail sector， a trend which worsened in 2015. By April， nearly 180 general merchandise stores sat empty.

Statistics from RET， Chinas commercial real estate research center， show that after Spring Festival in 2015， China saw closure of retail stores become standard after five stores were shut down by both Parkson and Marks & Spencer along with four Ito Yokado stores. At the same time， a number of outlets of other famous brands such as Wangfujing， Chung Tu， NOVO， Balloon， and Central Latpraw， were shut down in the second- and third-tier cities.

Of the shutdowns last year， 57.89 percent were foreign brands. Its worth noting that the majority were located in coastal cities or large cities that saw the earliest arrivals of foreign department stores， especially Beijing， Hangzhou， Changzhou， and Qingdao.

Since 2003， Chinas rapid economic growth has accelerated its pace of traditional merchandising. However， after a“golden decade，” the country has entered an era of e-commerce， which has heralded a “chilly winter” for many traditional industries， with retail as no exception.

Victim of E-Commerce？

The shrinking retail sector sharply contrasts the “explosive” growth of the e-business market. The development of the internet and the mobile internet in particular has made dramatic changes on lifestyles and consumption habits. Today， more and more people are content to stay at home and buy online at their leisure through a smart mobile device.

The National Bureau of Statistics of China reports that in 2014， Chinas e-commerce trade volume reached 16.39 trillion yuan， year-on-year growth of 59.4 percent. This figure is expected to continue increasing throughout 2015. The daily sales of Tmall and Taobao under Alibaba， the leading e-commerce company in China， broke 30 billion yuan on November 11， dubbed“Singles Day” in China.

The incremental rise of online shopping has nibbled away the market share of traditional retail. Statistics show a wide variety of goods sell well online including books， IT products， family appliances， textiles， and even luxuries.

Consumers have already proved winners of intense price wars between B2C websites such as Tmall and JD， helping them forget all about traditional department stores. Under a 360-degree siege from e-commerce， many retail department stores have been relegated to “fitting room” of online purchasing.

“The maturity and perfection of the environment for online shopping has resulted in breakneck expansion of retail business in China，” illustrates Chen Shousong， an analyst from Analysys International. “They have also enabled sustainable expansion of the population of online shoppers as well as continually greater penetration.”

His point is supported by statistics from the National Bureau of Statistics. In 2014， turnover from online shopping accounted for 10.7 percent of total retail sales of consumer goods， the first time 10 percent online shopping penetration was ever achieved. And the figure is still rising.

Where to Go

For insiders， the tide of online shopping continues beating the shores. Meanwhile， negative factors such as rising rents and labor costs as well as out-of-date business management systems will mark the end of traditional retail.

Traditional retail in China stands at a transformational crossroads.

Today， retailors have reached an experimental transformation period. Physical stores catering to retail business can no longer feed the needs of todays consumers. In days past， department stores were simply considered places for people to buy things， but today， consumers would like to see them become multi-purpose facilities for gathering， shopping， and wasting away leisure hours.

“Retail providers once fought for a wider variety of goods， but today， the key to the success is who can better read the minds of the market and consumers，” asserts Suo Shan， director of RET.

Following this line of thinking， the majority of the traditional retailers have conducted transformation in the same way： embrace e-commerce positively and explore the O2O model while shaking off physical department stores.

“Not only can any-channel O2O serve both online and offline needs， but it helps accumulate big data，” opines Xia Lin， deputy secretary general of the CCAGM.“It can also bring greater interest growth because it abandons the pattern of joint operation and places greater weight on proprietary trading.”

On July 17， 2015， Alibaba became the single biggest shareholder of Intime Department Store Group after investing HK$5.37 billion in the company last year. Analysts believe that the “marriage” between internet enterprise and traditional business meets the demands of O2O， both online and offline. Also， Wangfujing Department Store and JD Finance joined hands this year to launch the “blank note”program. BHG， a retail giant in China， has signed a framework agreement to collaborate with Alibaba to provide O2O services for companies under BHG.

“O2O is a business model to transform tertiary industries against the backdrop of the Internet+，” explains Ding Zhaoyong， associate professor from the School of Economics under Jilin University. “In first- and second-tier cities， many traditional department stores have adopted this model to solve practical problems for customers who can hardly buy online. It is an integration of offline experience and online marketing. The future ordinary business strategy should better target daily life and seek a more appropriate experimental pattern for the combination of online and offline services favoring its service ranks.”

The transformational dilemma plaguing traditional retail is representative of traditional industrys struggle for survival in the internet age. Veterans may survive the transformation by “wedding” the internet. Otherwise， they will likely pass away as the world continues its obsession with online shopping.