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Retailers face discount pinch

By Yu Tianyu (China Daily)
Updated: 2009-08-20 08:05

Customers shop at the Oriental Plaza shopping mall in Beijing. [China Daily]

Major retailers are paying the price for discount sprees and promotional activity in the first half of 2009, with many showing declines in net profits despite higher revenues.

The Dalian-based Dashang Group Co Ltd posted a 4-percent growth in revenue in the first half, but its net profit tumbled 73 percent year-on-year, a 10-year low, at 61.3 million yuan.

Fujian New Huadu Supercenter Co Ltd reported a 7.37-percent net profit decrease year-on-year compared to a 30.9-percent rise in revenue.

Hangzhou Jiebai Group Co Ltd reported a 5-percent net profit decrease, even as revenue touched 800 million yuan in the first half.

The net profits of Chongqing Department Store Co Ltd, Nanjing Xinjiekou Department Store Co Ltd and Guangzhou Grandbuy Co Ltd decreased by 23.1 percent, 25.8 percent and 12.5 percent, respectively.

Since the end of 2008, department stores in China held promotional activities and shopping festivals to lure customers to their stores.

Alex Liu, analyst at market research firm Euromonitor International, said: "Decreasing net profits of Chinese department store operators in the first half were mainly due to unprecedented discounts and promotions to combat the global financial crisis."

Xu Xiaofang, an analyst with Guotai Junan Securities, predicted that sales at China's department stores would rise by an average of 10 to 15 percent thanks to the current economic policies, and the booming stock and property markets.

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"But, department store companies would still be struggling with net profit declines," Liu said. "It is very difficult for them to reverse the current situation in the very short term, whereas, the declining rate would be lower in the second half."

Liu said retail industry sales would see an over 10-percent rise, due to an expected economic recovery.

An executive at a high-end department store in Beijing said: "Now, it is time for the department store operators to seize the market. We'll continue the promotional and discount activities in the second half to attract more customers, especially during the National Day holidays and during Christmas."

"Maintaining a stable set of customers is the key to retailers' sustainable development. So, we are marking our strategies for beyond the financial crisis period," he said.

"Large scale discounts and promotions would continue in the second half year, but they would not be as deep as they were in first half," Liu said. "Many shoppers have got used to such huge discounts and promotions, so they are likely to stop purchasing and wait for department stores to do more such promotions."

Liu said department store operators haven't found any other way to maintain sales growth and customers, so some companies have started adjusting the scale of promotions to improve net profits.

He said some operators have raised prices a bit, for instance in clothing and cosmetics, and have kept previous discounts to retain their customers.

During the January-July period, China's retail sales totaled 6.86 trillion yuan, a 15-percent year-on-year increase. Sales at 100 key retail enterprises were 145.4 billion yuan, an increase of 10.9 percent.

In the first half, per-capita disposable income was estimated at 8,856 yuan, a 9.8-percent year-on-year rise, according to figures released by the National Bureau of Statistics.