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Chinese Department Stores Focus on Digital and Direct Sales

SKP Beijing department store. SKP Beijing

A new report on China’s department store sector shows a bifurcating market in which the winners capitalise on the country’s consumption bounce back and those who have failed to transform from a traditional way of doing business continue falling behind.

The ‘China Department Stores Report 2020-2021’ from the China Commerce Association for General Merchandise (CCAGM) and Fung Business Intelligence Centre (FBIC) showed that, although some properties, particularly luxury properties in top tier cities, like SKP in Beijing, outperform the sector, most of the surveyed department stores “lack product appeal and competitiveness, offering widely homogeneous products at unattractive prices.”

The traditional concession model still dominates the operation of China’s department stores, and although direct sales have been identified as an important strategic direction for the sector, more than half of the surveyed department store operators stated that the proportion of direct sales business to their bottom line is less than 10 percent.

This is largely because transforming to direct sales is expensive, with the introduction of private label businesses (for example) requiring time and investment for brand recognition, while multi-brand stores require trained professional buyers, which remain in short supply. In short, those who aren’t doing well are going to find it increasingly difficult to come up with the capital to catch up with the sector’s leaders, requiring local governments to step in or a future of consolidation.

From a digitalisation perspective, 89 percent of surveyed respondents have established an e-commerce business and among them, around 94.4 percent are selling via WeChat. Department stores have also been building their online sales through livestreaming (75 percent), and among companies that have already established their e-commerce business, around 66.2 percent of respondents said online retail sales have grown over the past year.

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