Department stores urged to adapt

China's department stores are facing challenges from the fast expansion of diversified retail formats, including shopping malls and e-commerce websites, and urgently need to be transformed to survive, an international real estate advisory firm said in a report Tuesday.

The average operating profit rate of all major listed department store operators, such as Hangzhou Jiebai Group Co and Chongqing Department Store Co, was 12.4 percent in 2013, 0.1 percentage points lower compared with the previous year, the third consecutive year to have witnessed profit decline since 2010, according to the report released by CBRE (China) in Beijing.

The overall sales value of Chinese department stores witnessed a 3.2 percent rise in the first two months this year, 4.8 percentage points lower compared with the same period of the previous year, according to the Ministry of Commerce.

Poor business performance by the stores could be ascribed to increased competition from new retail formats, such as shopping malls, supermarket chains and e-commerce platforms, according to the report.

The report also noted that high rental and labor costs also "eat up" department stores' profit margins.

"Department stores will need to strengthen their core competitiveness if they are to survive in the rapidly changing China retail market," Chen Zhongwei, executive director and head of CBRE Research China, said at the press conference Tuesday.

Chen suggested the department stores expand their store network, reform their business model, adopt new technologies, which could combine physical stores with e-commerce businesses, and learn from malls.

While department stores face challenges amid the rapid expansion of e-commerce businesses, shopping malls, which can offer diversified services including food courts, cinemas and playgrounds, have still "seen fast expansion," according to a report released by an international real estate advisory firm Savills Property Service Co Tuesday,

The occupancy rate for the high-end shopping malls in Beijing reached 94.9 percent in the second quarter, 0.9 percentage points higher compared with the previous quarter, Savills report said.

"To attract more consumers who would like to shop online, the shopping malls include more cuisine brands and offer life-experience services," Dong Yue, manager of Research and Consultancy at Savills Property Service (Beijing), said at a press conference in Beijing Tuesday.

Chen of CBRE China also suggested the department stores explore their self-owned brands to increase profit margin.

US department store Macy's, whose self-owned brands and brands for exclusive distribution account for over 40 percent of its total commodities, reported an annual average gross profit of 40 percent, according to statistics compiled with the CBRE (China).

In contrast, gross profit rates of domestic listed department stores ranged from 10 percent to 20 percent in 2013, CBRE (China) said.