Department stores, new-age malls vie for consumers amid e-commerce explosion
In the age of New Retail, operators of traditional department stores, malls and e-commerce platforms in China are turning ingenious to find novel ways of staying afloat and relevant, as consumers' tastes and preferences evolve rapidly, with focus on consumption upgrade and shopping as an experience in itself.
Coined in 2016 by Alibaba founder Jack Ma, the term New Retail refers to the integration, or interlinking, of online and offline shopping using modern technologies, data and customer engagement techniques. New Retail, Ma said, is making the distinction between physical and virtual commerce obsolete by combining the best in physical and online retail.
For now, it seems department stores may be trailing in the race for sales revenue. "Consumers have shown an increasingly diversified and personalized demand. Traditional department stores should adjust their focus to offer multi-dimensional services, and stop being pure retail stores," said Neil Wang, president of consultancy Frost& Sullivan China.
Wang said trendy shopping malls are integrating a plethora of attractions like dining, entertainment facilities like cinemas, exhibitions, salons, hypermarkets, exclusive outlets of brands, yoga studios and sometimes even a mini-zoo, all of which offer irresistible, all-under-one-roof convenience to consumers.
On the other hand, shoppers have taken a shine to e-commerce. Against this backdrop, traditional retailers like department stores find themselves struggling due to rising labor cost and high rentals, which are inflating their losses.
Some of them have shuttered, while others strive to adjust their business models. A few department stores are even trying to cater to new demand for top-quality goods and comprehensive services, to ensure shopping on their premises remains fun.
But many old-fashioned department stores have seen their growth slowing in the Chinese market in recent years, in sharp contrast to earlier days when they could make some easy and quick money.
"Department stores should also increase the portion of their self-operated business, and avoid homogenization of brands. In fact, compared with the highly competitive retail industry in Japan and the United States, China's department stores have ample room for growth. There aren't any monopoly department stores taking top market positions yet," Wang said.
Given their brick-and-mortar model and physical space, department stores would do well to hold exhibitions and events, to create new revenue streams that can help them to compete with e-commerce platforms and draw more consumers, he said.
Although already popular, and in spite of the travails of department stores, malls in China are in no mood to become complacent. For instance, Beijing Parkview Green shopping mall launched special operations for the holiday season from December to end of January.
It added more modern designs, decorations and lighting shows. That's not all. It extended its opening hours on Fridays and Saturdays.
On weekend evenings, it continues to hold recreational events such as film and art exhibitions, reading clubs and live music performances. By launching such events, it aims to attract more shoppers, create consumer stickiness on its premises and stimulate overall sales.
The mall also cooperates with Shouqi limousine and chauffeur service firms. This helps maintain adequate number of vehicles on its parking lot through the evenings, to serve consumers at short notice.
"Our events enable consumers to enjoy a social space that is complete with arts and fun, and help further promote the night economy and night culture in Beijing," said Xu Guanglei, general manager of sales and marketing at Parkview Green.
In contrast, the growth of department stores has been constrained in recent years. One major reason was the rapid development of supermarket chains, convenience stores and online shopping platforms.
From 2013 to 2017, the compound annual growth rate of department stores in China was 3.5 percent, according to consultancy Frost& Sullivan.
In 2017, department stores started to transform their business model to better cater to the new economic trend and consumption patterns.
Overall sales of department stores in the country reached 424.76 billion yuan ($60.85 billion) in 2017, up 9 percent over 2016.
Some traditional department stores such as Yintai Group, Bailian Group and Liqun Group have strengthened their cooperation with internet giants such as Alibaba Group and Tencent Holdings Ltd, to integrate online shopping and their offline supply chains, giving a new twist to New Retail.
Others such as Parkson Retail Group, a retail division of the Malaysian Lion Group, embraced the principle of 'if you can beat 'em, join them'.
Its move is understandable, given its history in China. Parkson opened its first department store in 1994 in Beijing. During its initial years, it netted high revenue from sales of high-end products. But now, it is struggling to compete with online shopping platforms and new-age malls.
To keep pace with the times, Parkson has launched an online store itself. Buyers can purchase online and opt for home or office delivery, or pick up their shopping themselves at the store.
But not everyone has taken Parkson's route. Some foreign companies that forayed into the mall sector in China first familiarized themselves with the local commercial culture and consumer mentality. They have fared well because they offered stylish social spaces and fun events for consumers, experts said.
Raffles City, owned by Singapore-based CapitaLand, belongs to this league. It is one of Asia's largest real estate companies, and has been innovating its operations at its 15-year-old shopping mall near the People's Square in Shanghai.
There, it has integrated experiences and services. The company said it is trying to make both shopping and relaxing experiences for consumers increasingly smarter.
For example, the mall introduced some trendy cosmetics brands such as Hermes Beauty, Laduree, the first online-to-offline or O2O concept store of GNC, and perfume vending machine concept store Perfume Box. U.S. retailer Bath &Body Works also launched its first store in China at the mall.
Besides holding various art exhibitions in the middle part of the first floor, the mall has introduced a large number of flash stores and events. Such innovations helped the mall to attract heavy footfalls, and the events themselves became hot topics of discussions among consumers, thus creating a strong word of mouth.
Raffles City opened its second mall in Changning district of Shanghai in 2017. In 2018, the mall converted its terrace into a city farm comprising a restaurant, a yoga studio, cooking classrooms, organic planting areas, craft workshops, and a mini-zoo. The renovation helped the mall to earn an extra 1.2 million yuan in annual revenue, the company said.
"The renovation has provided consumers a new kind of lifestyle. After the redesign, it has helped the restaurant on the terrace attract 15,000 customers every month on average," said Li Shouyu, general manager of Raffles City in Changning district of Shanghai.
In Hangzhou, Zhejiang province, the complex of Raffles City integrates a shopping center, an office building and a serviced apartments block. The mall has introduced a large number of flagship stores and concept stores. It also launched various events and areas like music festivals, a live music bar and an urban ski resort.
In a sense, the physical shopping areas' struggle for survival in the age of e-commerce can be compared to the cinemas' reinvention of themselves through audio-visual high-tech and on-site attractions, when faced with competition from television, personal entertainment devices and online content.
Similarly, demand for brick-and-mortar malls may not disappear in a hurry in spite of the convenience of e-shopping because consumers need a social space to meet up and spend their leisure time, retail experts said.
"If I go out to meet with friends on weekends, we usually prefer to go to a mall that has multiple fashion brands, good restaurants, cafes and a cinema, so that we can spend a long time there. That would be the easiest way for us to catch up with each other," said Tian Shen, a 27-years-old bank employee in Beijing.
