Department stores wheel out big guns in retail battle

Traditional department stores are flexing their muscles to regain their place on the retail battlefield, as the breakneck growth of e-commerce takes its toll.

The risks faced by bricks-and-mortar retailers have recently been amplified by a string of somber sales figures, especially after online vendors, fueled by the Singles' Day bonanza on Nov 11, delivered an enviable performance over the past weekend.

That day, e-commerce giant Alibaba Group Holding Ltd alone generated 19.1 billion yuan ($3.06 billion) in sales, triple the combined revenue of around 5,000 retail outlets in Shanghai during the eight-day National Day holidays in early October.

During the holidays, from Sept 30 to Oct 7, the nation's 100 major retailers saw their sales increase by 8.49 percent year-on-year, according to China National Commercial Information Center.

This was a rare occurrence of growth since the introduction of the Golden Week more than a decade ago.

But problems are likely to loom larger for traditional retailers as online merchants sprint ahead. Driven by an urgent desire to boost their sales, stores are jostling to offer the deepest discounts to drum up consumer interest.

Feeling the pinch due to the e-commerce boom, Hong Kong-headquartered New World Department Store China Ltd has stepped up promoting its annual discount gala in Shanghai more than a month earlier than previous years.

Likewise, the three outlets of Pacific Department Store Co Ltd in Shanghai plan to knock up to 50 percent off women's sweaters and offer special discounts on jewelry and cosmetics.

According to the company, the 17-day long promotion aims to expand its consumer base and retain customers by encouraging shoppers to register for a membership card that entitles them to discount coupons.

The move is, put bluntly, to tackle the growing challenges posed by the exploding development of e-commerce, said Yan Chengda, deputy general manager of the company.

"Clothes are generally the least immune items to pressure from the thriving online business, so we are offering deep discounts," Yan added.

Meanwhile, Pacific has added categories like accessories, which require more customer engagement, because Yan said department stores have an edge over their virtual rivals in the interaction they provide between customers and shop assistants.

In general, however, e-commerce has dealt the heaviest blow to apparel retailers, notably sportswear companies, said Han Weiwen, a Shanghai-based partner with consultancy Bain & Co.

"The apparel industry's stellar growth rate in China has come to an end. It is not going to enjoy double-digit growth again," he told China Daily.

Anta Sports Products Ltd opened 229 new stores in 2011, only one-third of those opened in 2010. Peak Sport Products Co Ltd has lowered its growth target to single-digits and shut 500 stores nationwide in 2012, said Zeng Xiang, a manager at Bain.

In a somewhat similar move, the usually markdown-averse Shanghai Bailian Group dusted off its clearance signs, selling apparel and footwear at discounts of up to 30 percent.

The retail conglomerate saw its gross profit decline by 1.96 percent, according to the 2011 annual report of its A-share listed company Shanghai Friendship Group Inc Co.

Cash flow generated from its operating activities, a combination of rents and revenue deduction, slid 31.4 percent year-on-year, indicating a drastic drop in sales and perhaps customer flow.

Amid the difficulties, introducing world-renowned brands such as Boss, Cartier and Longchamp has "played a critical role in the readjustment of the company's strategic layout", the report said, adding it will stick to its path of attracting top-notch brands.

Chen Tao, a partner at consulting firm Roland Berger Strategy Consultants in Beijing, said boutiques and shopping centers are more vulnerable to Internet sales if the inventories they have in stock are standardized products that are easy to get.

"If you look at the online apparel landscape, it's interesting to note that people start by selling shirts and sportswear, both of which are standardized clothes, and from there they proliferate to other categories," Chen said.

Likewise, digital products and home appliances are the categories of goods that are least immune to pressure from Internet sales.

Apart from their inventory, stores should learn to identify their target customers and readjust their strategies accordingly.

Chen said that online shoppers have weaker product preference than consumers purchasing goods through traditional channels, and place less emphasis on the brand, because the Internet provides consumers with many replaceable and complementary categories.

Nevertheless, developers are still poised to cash in on the retail property market, statistics have suggested.

According to commercial real estate consultancy Cushman & Wakefield Inc, rents at department stores across the Asia-Pacific region grew 2.8 percent in 2012, largely fueled by growth in China.

Hong Kong, Beijing and Shanghai were among the five cities with the highest rents in Asia.

"The value of department stores lies in the unique shopping experience and services, which could be strengthened to offset the impact of online shopping," said Xu Feifei, brand strategy director at Labbrand Enterprise Management Consulting in Shanghai.

Retailers should step up their personalized game, offering more objects with new fonts and creative typography to attract a new generation of shoppers, said Chen.

"For instance, they could sell tailor-made products with a special color or pattern that is only available in brick-and-mortar stores," he said.

In the long run, online and offline shops are complimentary, said Jeff Baum, senior vice-president at Manhattan Associates Asia-Pacific, a company that facilitates supply chains.

Contact the writer at hewei@chinadaily.com.cn