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Li & Fung Research Centre Member of the Li & Fung Group
LI & FUNG RESEARCH CENTRE
China Distribution & Trading Issue 89 August 2011
I. Overview
II. Operation modes of
department stores in
China
III. Competitive landscape
IV. Challenges
V. Recent developments
Li & Fung Research Centre
11/F, LiFung Tower
868 Cheung Sha Wan Road,
Kowloon, Hong Kong
Tel: (852) 2300 2399
Fax: (852) 2635 1598
E-mail: lfdc@lf1937.com
http://www.lifunggroup.com
IN THIS ISSUE:
Department stores in China, 2011
Overview
The total sales value of department stores in China was 249.8 billion
yuan in 2009; sales of select member enterprises of the China Commerce Association for General Merchandise registered 17.5% growth in 2010.
Operation modes of department stores in China
Department stores operators in China generate revenue from (1) commissions on concessionaire sales, (2) merchandise direct sales, (3) rental income from store tenants, (4) agency fee earned by serving as agents and (5) management fee etc.
Commissions on concessionaire sales are the predominant source of income.
Competitive landscape
Compared with many mature markets, China’s department store sector is very fragmented.
Domestic department store operators tend to focus on regional markets, while leading foreign department store operators have wider footprints.
A growing number of department store operators look for opportunities in lower-tier cities.
Challenges
Many department stores in China are poorly differentiated. Reliance on commissions from concessionaire sales is a major reason behind.
Heavy initial capital outlays, lack of expertise in merchandising and long nurturing period for new brands are some common concerns for operators to try out new operating models.
Department stores are facing Increasing challenges from other retail formats such as shopping malls, professional stores, discount outlets and online retail stores.
Recent developments
Some department store operators have refined their market positioning strategies to cater to specific customer demographics.
Department store operators pay growing attention to transform purchasing practices; the development of private labels and proprietary brands is drawing attention.
A number of department store operators explore opportunities online.
Department store operators try to incorporate more elements of shopping experiences.
Department store operators seek M&A opportunities; a number of department store operators have sought public listings in recent years.
Impact of new prepaid card restrictions on department store operators remains to be seen.
Li & Fung Research Centre Member of the Li & Fung Group
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China Distribution & Trading Issue 89 August 2011
Department stores in China, 2011
Department stores1 have long been one of the major retailing channels in China. It is the chief distribution channel for
branded apparel, cosmetics, jewelry and watches, etc, targeting mid-to-high income consumers. In the past decades,
many consumer companies have viewed department stores as their top-of-choice retail channel to build brand
recognition in China. That said, there is growing concern over department stores gradually losing appeal to Chinese
consumers due to poor differentiation. Department stores operators are also facing increasing challenges from other
format retailers such as shopping malls, internet retailers, outlets, etc. They are taking steps to improve operations.
I. Overview
1. The total sales value of department stores in China was 249.8 billion yuan in 2009; sales of select member
enterprises of the China Commerce Association for General Merchandise registered 17.5% growth in 2010
According to the National Bureau of Statistics of China (NBS), the total sales value of department stores was 249.8
billion in 2009 (Exhibit 1).
Exhibit 1: Total sales value of department stores, 2003-2009
59.7
93.0
127.5148.2
162.5
211.0
249.8
0
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008 2009
Sa
les v
alu
e (
billio
n y
ua
n)
Source: National Bureau of Statistics of China
1 Department stores are stores with sales area between 6,000 and 20,000 m
2, usually multi-storey, selling wide range of merchandises with emphasis
on clothing and accessories, footwear, household items and home appliances etc. Special concessionaire counters and open shelves are the chief sales formats.
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China Distribution & Trading Issue 89 August 2011
According to the China Commerce Association for General Merchandise (CCAGM), sales revenue of its 66 member
department store operators climbed by 17.5% yoy in 2010 (see Exhibit 2). Most of the surveyed enterprises are leading
department store operators in China.
Exhibit 2: Performance of the member enterprises by CCAGM, 2005-2010
2005 2006 2007 2008 2009 2010
Sales revenue growth (% yoy) 18.0 13.7 17.8 16.9 15.2 17.5
Source: China Commerce Association for General Merchandise (CCAGM)
According to the CCAGM, 92.4% of the member enterprises enjoyed sales revenue growth in 2010, higher than that of
81.7% in 2009 (Exhibit 3).
Exhibit 3: Sales growth of select member enterprises by CCAGM, 2010
Sales revenue growth Number of enterprises Share (%)
Over 20% 22 33.3
Over 15% 32 48.5
Over 10% 47 71.2
With improving sales revenue 61 92.4
With declining sales revenue 5 7.6
Source: China Commerce Association for General Merchandise (CCAGM)
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China Distribution & Trading Issue 89 August 2011
II. Operation modes of department stores in China
Department stores operators in China generate revenue from (1) commissions on concessionaire sales, (2)
merchandise direct sales, (3) rental income from store tenants, (4) agency fee earned by serving as agents and (5)
management fee etc.
Commissions on concessionaire sales
Under concessionaire sales arrangements, department store operators do not own the title to the goods. They enter into
agreements with concessionaires and grant the latter the rights to sell the products in designated store areas.
Department store operators generally provide a range of services including advertising, marketing, store decoration and
renovation, inspection of goods, safety inspections, and centralized payment settlements. Concessionaires need to
hand over a certain percentage of their total sales proceeds to department stores as commissions, usually with a
guaranteed base-figure for sales each month (see Exhibit 4 for the concessionaire rate of select department operators
listed in Hong Kong).
Exhibit 4: Concessionaire rate of select department store operators, 2009-2010
2010 2009
Golden Eagle Retail Group Ltd. 20.0% 20.3%
Intime Department Store (Group), Co., Ltd. 17.8% 18.0%
New World Department Store China Ltd. 19.4% 20.3%
Maoye International holdings Ltd. 17.5% 18.0%
Source: company annual reports
Merchandise direct sales
Under direct sales arrangements, department store operators source and sell their own directly purchased merchandise.
Department store operators own the title to the goods and profit from merchandise mark-ups.
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China Distribution & Trading Issue 89 August 2011
Rental income from store tenants
Department store operators lease designated areas to other business operators and receive rental income. Department
store operators do not own the title to the goods and are generally not responsible for sales management. Brand
companies, as the tenants, need to pay rent, while all the revenue is independent of the department stores.
Commissions on concessionaire sales are the predominant source of income
Commissions on concessionaire sales are the predominant source of income for China’s department store operators.
Take several listed department store operators as example. From Exhibit 5, we can see that commissions from
concessionaire sales accounted for more than 50% of the total sales proceeds. That said, compared to previous years,
Intime, Golden Eagle and New World Department Store were less dependent on concessionaire sales and have put
more focus on merchandise direct sales.
Exhibit 5: Revenue breakdown of department store operators from select companies, 2010
Intime Golden Eagle New World
Department
Store
Parkson
Commissions from concessionaire sales 60.87% 70.56% 63.91% 58.42%
Sale of goods - direct sales 31.64% 27.60% 21.22% 36.20%
Rental income 6.35% 1.49% 6.63% 4.59%
Management fee income from the operation of
department stores
1.14% 0.35% 8.24% 0.79%
Source: company annual reports
III. Competitive landscape
1. Compared with many mature markets, China’s department store sector is very fragmented
According to China Chain Store and Franchise Association (CCFA), among the top 100 retail chain operators in 2010
(hereafter the top 100s), there were 35 players chiefly operating the department store format (see Exhibit 6). Their
average growth of sales revenue and growth of number of stores was 23.2% and 18.5% respectively in 2010.
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China Distribution & Trading Issue 89 August 2011
Exhibit 6: Department store operators among the Top 100s, 2010
Enterprise Sales value
(million yuan)
yoy growth
(%)
Number of stores*
yoy growth
(%)
Place of origin
Dalian Dashang Group Co., Ltd.
大連大商集團有限公司
86,157.7 22.1 170 6.3 Chinese Mainland
Chongqing Commerce (Group) Ltd. 重慶商社(集團)有限公司
38,215.9 27.2 319 1.9 Chinese Mainland
Shandong Commercial Group Corporation
山東銀座商城股份有限公司
37,000.0 44.3 264 28.2 Chinese Mainland
Hefei Department Store Group Co., Ltd.
合肥百貨大樓集團股份有限公司
24,900.0 19.1 171 25.7 Chinese Mainland
New World Department Store China Limited**
新世界百貨中國有限公司**
17,900.0 19.3 37 8.8 Hong Kong
Jiangsu Wenfeng Great World Chainstore Development Co., Ltd.
文峰大世界連鎖發展股份有限公司
17,649.3 12.7 1,016 3.9 Chinese Mainland
Beijing Wangfujing Department Store (Group) Co., Ltd. **
北京王府井百貨(集團)股份有限公司**
16,600.0 25.1 22 15.8 Chinese Mainland
Parkson Retail Group Ltd. **
百盛商業集團有限公司**
16,560.0 33.9 47 6.8 Malaysia
Changchun Eurasia Group Co., Ltd. 長春歐亞集團股份有限公司
16,175.9 20.1 35 16.7 Chinese Mainland
Rainbow Department Store Co., Ltd.
天虹商場股份有限公司
14,705.6 26.6 44 18.9 Chinese Mainland
Golden Eagle Retail Group Limited**
金鷹商貿集團有限公司**
12,400.0 32.5 19 11.8 Chinese Mainland
Intime Department Store (Group) Co., Ltd.
銀泰百貨(集團)有限公司
11,962.4 32.7 24 4.3 Chinese Mainland
Shandong Weifang Department Store (Group) Co., Ltd.
山東濰坊百貨集團股份有限公司
10,992.5 15.4 356 11.9 Chinese Mainland
Liaoning Xinglong Big Family Business Group
遼寧興隆大家庭商業集團
9,193.8 16.6 15 36.4 Chinese Mainland
Anhui Commercial Capital Co., Ltd.
安徽商之都股份有限公司
9,048.1 24.6 885 -4.6 Chinese Mainland
Zhengzhou Dennis Department Store Co., Ltd.
鄭州丹尼斯百貨有限公司
8,774.4 23.6 67 34.0 Chinese Mainland
Beijing Yansha Friendship Shopping Mall Co., Ltd.
北京新燕莎控股(集團)有限責任公司
8,004.2 24.8 10 0.0 Chinese Mainland
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China Distribution & Trading Issue 89 August 2011
Enterprise Sales value
(million yuan)
yoy growth
(%)
Number of stores*
yoy growth
(%)
Place of origin
Maoye International Holdings Ltd.
茂業國際控股有限公司
7,266.7 49.7 36 63.6 Chinese Mainland
Guangzhou Grandbuy Co., Ltd.
廣州市廣百股份有限公司
6,776.0 5.3 23 21.1 Chinese Mainland
Jinan Renmin Shopping Group Co., Ltd.
濟南人民商場集團股份有限公司
5,985.5 14.2 6 0.0 Chinese Mainland
Nanjing Central Emporium Group Stocks Co., Ltd.**
南京中央商場股份有限公司**
5,300.0 18.3 7 0.0 Chinese Mainland
Tangshan General Merchandise Group Co., Ltd.
唐山百貨大樓集團有限責任公司
5,018.3 25.3 10 25.0 Chinese Mainland
Jinan Hualian Commercial Group 濟南華聯商廈集團股份有限公司
4,623.0 36.8 22 29.4 Chinese Mainland
Wuhan Zhongbai Group Co., Ltd.
武漢中商百貨連鎖有限責任公司
4,615.9 18.2 9 0.0 Chinese Mainland
Beijing Cuiwei Plaza Shopping Center
北京翠微大廈股份有限公司
4,342.0 39.5 5 66.7 Chinese Mainland
Guangzhou Friendship Group Co., Ltd.
廣州友誼集團股份有限公司
4,150.0 21.0 5 25.0 Chinese Mainland
Hunan Friendship & Apollo Co., Ltd.**
湖南友誼阿波羅股份有限公司**
4,140.0 38.0 9 0.0 Chinese Mainland
Beijing Shunyi Guotai Commercial Building
北京市順義國泰商業大廈
4,080.0 29.1 13 8.3 Chinese Mainland
Shandong Weihai Department Store Group Stock Co., Ltd. 山東威海百貨大樓集團股份有限公司
4,010.6 -5.9 24 -7.7 Chinese Mainland
Handan Sunshine Department Store (Group) Co. Ltd. 邯鄲市陽光百貨集團總公司
3,810.0 26.0 89 107.0 Chinese Mainland
Beijing Xidan Friendship Group
北京西單友誼集團
3,531.4 5.9 222 16.2 Chinese Mainland
Hunan Jiahui Department. Store Co., Ltd.
湖南佳惠百貨有限責任公司(集團)
3,091.0 7.3 209 4.5 Chinese Mainland
Shirble Department Store Holdings (China) Ltd.
深圳歲寶百貨有限公司
2,887.7 15.5 13 18.2 Chinese Mainland
Guangxi Nancheng Stores Joint-stock Co., Ltd.
廣西南城百貨股份有限公司
2,433.6 27.2 24 41.2 Chinese Mainland
Xiongfeng Group Co., Ltd.
雄風集團有限公司
2,380.0 18.5 118 2.6 Chinese Mainland
* Number of stores included stores of other retail formats ** Estimated figures
Source: China Chain Store and Franchise Association (CCFA)
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China Distribution & Trading Issue 89 August 2011
According to a Euromonitor report released in early 2011, the top 20 mixed retailers2 in China accounted for a 19.2%
retail value share of the sector; all of the top 20 mixed retailers are department store operators. The department store
sector is very fragmented, compared with many mature markets. In China, many department stores are single-store
independents. With huge regional disparities in consumers’ tastes and spending patterns, national chain operation for
department stores is not easy. Unlike in the United States where we see players such as JC Penny and Kohl’s operating
hundreds of department stores across the nation, national department store chains is a rare sight in China. For example,
as of August 2011, leading foreign players such as Parkson and New World Department Store have 48 and 38 stores
respectively in the country; while bigger domestic players such as Intime, Wangfujing and Guangzhou Grandbuy all
have fewer than 30 stores in China.
2. Domestic department store operators tend to focus on regional markets, while leading foreign department
store operators have wider footprints
Domestic department stores
Most of the domestic department store operators in China are region-focused. For instance, Golden Eagle has a “one
city, multiple stores” strategy, aiming to strengthening foothold in respective markets. As mentioned, there are huge
regional disparities in consumers’ tastes; regional department store operators usually have better understandings of
local consumers. Besides, a big number of suppliers in China operate on a regional rather than on a national basis;
longstanding relationship with local suppliers gives domestic operators an extra edge. Not to mention that many
state-owned domestic players have received huge support by local governments and occupy the prime locations in city
centers or developed commercial circles; this partly explains the strong performance of a number of domestic players in
respective cities and provinces.
In recent years, many established domestic department store operators, especially those with strong regional heritage
such as Golden Eagle, Intime and Maoye, have strived for regional dominance. Some of them also seek to expand
beyond their home provinces. Golden Eagle plans to focus on the provincial capitals when expanding into other regions.
That said, expansion into other provinces has been a challenge for most domestic operators. For instance,
Zhejiang-based Intime Department Store reportedly has a poorer performance in Beijing than its home province for its
joint venture project with Lotte Department Store from Korea. The lackluster performance is reportedly due to
worse-than-expected consumers’ response towards Korean high-end products that Lotte Intime tried to introduce to the
Chinese market. Lotte Intime later changed the merchandizing mix and reduced product offerings from Korea.
2 According to Euromonitor, mixed retailers in China include department stores, mass merchandisers, variety stores and warehouse clubs.
Department stores is the most important channel in mixed retailers in China due to its longstanding tradition.
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China Distribution & Trading Issue 89 August 2011
Exhibit 7 demonstrates the store locations of select domestic players in China.
Exhibit 7: Store locations of select domestic department stores operators in China, as of July 2011
Company Store locations
Intime Department Store (Group), Co., Ltd. 銀泰百貨(集團)有限公司
Beijing
Zhejiang province: Hangzhou, Jinhua, Ningbo, Wenzhou, Zhoushan
Hubei province: Wuhan, Ezhou, Xiangfan, Xianning, Xiantao
Shaanxi province: Xi'an
Golden Eagle Retail Group Ltd.
金鷹商貿集團有限公司
Jiangsu province: Huai’an, Nanjing, Nantong, Suzhou, Yancheng, Yangzhou, Xuzhou
Anhui province: Hefei, Huaibei
Yunnan province: Kunming
Shanghai
Jiangsu province: Taizhou
Shaanxi province: Xi’an
Beijing Wangfujing Department Store (Group) Co., Ltd.
北京王府井百貨(集團)股
份有限公司
Beijing
Inner Mongolia province: Baotou, Hohhot
Hunan province: Changsha
Sichuan province: Chengdu
Chongqing
Guangdong province: Guangzhou
Yunnan province: Kunming
Henan province: Luoyang
Shanxi province: Taiyuan
Xinjiang province: Urumqi
Hubei province: Wuhan
Qinghai province: Xining
Dalian Dashang Group Co., Ltd.
大連大商集團有限公司
Liaoning province
Heilongjiang province
Jilin province
Henan province
Sichuan province
Shandong province: Qingdao
Maoye International Holdings Ltd.
茂業國際控股有限公司
Guangdong province: Shenzhen, Zhuhai
Hebei province: Baoding
Jiangsu province: Changzhou
Chongqing
Liaoning province: Shenyang
Jiangsu province: Taizhou, Wuxi
Shanxi province: Taiyuan
Shandong province: Zibo
Beijing Xidan Department Store Co., Ltd. 北京市西單商場股份有限公
司
Beijing
Sichuan province: Chengdu
Gansu province: Lanzhou
Qinghai province: Xining
Xinjiang province: Urumqi
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China Distribution & Trading Issue 89 August 2011
Company Store locations
Fujian Dongbai Group Co., Ltd.
福建東百集團
Fujian province: Fuzhou
Changchun Ouya (Group) Co., Ltd.
長春歐亞集團股份有限公司
Jilin province: Changchun
Hangzhou Jiebai Group Co., Ltd
杭州解百集团股份有限公司
Zhejiang province: Hangzhou
Chengshang Group Co., Ltd. 成商集團股份有限公司
Sichuan province: Chengdu, Luzhou, Mianyang, Nanchong
Silver Plaza Group Co., Ltd.
銀座集團股份有限公司 Shandong province
Hebei province
Hunan province
Hefei Department Store Group Co., Ltd. 合肥百貨大樓集團股份有限
公司
Anhui province: Bengbu, Chaohu, Hefei, Huainan, Huangshan, Lu'an, Tong Ling
Wuhan Zhongnan Commercial (Group) Co., Ltd.
中商集團股份有限公司
Hubei province: Huanggang, Jingmen, Jingzhou, Shiyan, Suizhou, Wuhan, Xianning
Wuhan Zhongbai Group Co., Ltd. 武漢中百集團股份有限公司
Hubei province: Jianli, Jingzhou, Wuhan
Guangzhou Friendship Group Co., Ltd.
廣州友誼集團股份有限公司
Guangdong province: Guangzhou
Guangxi province: Nanning
Guangzhou Grandbuy Co., Ltd.
廣州市廣百股份有限公司
Guangdong province: Guangzhou, Huizhou, Jieyang, Maoming, Shenzhen, Zhaoqing, Zhanjiang
Hubei province: Wuhan
Source: Company websites
Foreign department stores
Foreign department store operators generally target the higher-income consumers. Exhibit 8 demonstrates the store
locations of select foreign department store operators in China. Hong Kong-based New World Department Store China
Ltd and Malaysia-based Parkson Retail Group Ltd were the only two foreign department store operators among the Top
100s in 2010. Both have wider national footprints than most of their domestic counterparts.
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China Distribution & Trading Issue 89 August 2011
Exhibit 8: Store locations of select foreign department stores operators in China, as of July 2011
Department stores operators Place of origin
Store locations
Parkson Retail Group Ltd.
百盛商業集團有限公司
Malaysia Liaoning province: Anshan, Dalian, Shenyang
Beijing
Jiangsu province: Changshu, Nanjing, Wuxi
Sichuan province: Chengdu, Mianyang, Zigong
Chongqing
Guizhou province: Guiyang, Zunyi
Heilongjiang province: Harbin
Anhui province: Hefei
Yunnan province: Kunming
Jiangxi province: Nanchang
Guangxi province: Nanning
Shandong province: Qingdao, Yantai
Shanghai
Guangdong province: Shantou
Hebei province: Shijiazhuang
Shanxi province: Taiyuan
Tianjin
Xinjiang province: Urumqi
Shaanxi province: Xi’an
Hunan province: Yueyang
Henan province: Zhengzhou
New World Department Store China Ltd.
新世界百貨中國有限公司
Hong Kong Liaoning province: Anshan, Dalian, Shenyang
Beijing
Hunan province: Changsha
Sichuan province: Chengdu
Chongqing
Heilongjiang province: Harbin
Yunnan province: Kunming
Ganzu province: Lanzhou
Jiangsu province: Nanjing
Zhejiang province: Ningbo
Shanghai
Zhejiang province: Taizhou
Tianjin
Hubei province: Wuhan
Henan province: Zhengzhou
Aeon Group
永旺集團
Japan Beijing
Guangdong province
Shandong province
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China Distribution & Trading Issue 89 August 2011
Department stores operators Place of origin
Store locations
Far Eastern Group
遠東集團
Taiwan Beijing
Sichuan province: Chengdu
Chongqing
Liaoning province: Dalian
Shanghai
Tianjin
Jiangsu province: Wuxi
Isetan Co., Ltd
株式會社伊勢丹
Japan Sichuan province: Chengdu
Shanghai
Liaoning province: Shenyang
Tianjin
Ito Yokado
伊藤洋華堂
Japan Beijing
Sichuan province: Chengdu
Shin Kong Mitsukoshi (With Hualian)
新光三越百貨
Taiwan Beijing
Lotte Group
韓國樂天集團
Korea Beijing (with Intime)
Tianjin
Liaoning province: Shenyang
Lifestyle International Holdings Ltd.
利福國際集團有限公司
Hong Kong Shanghai
Source: Company websites
Eyeing better growth potential, new foreign entrants are flocking to China. Galeries Lafayette (China), a 50-50 joint
venture established by French Galeries Lafayette and Hong Kong-based IT Limited, plans to open its first department
store in Beijing in 2013. Central Retail Corporation (CRC) from Thailand, on the other hand, is working with China
Resources Land – for which the well-known MixC shopping malls launched by the China Resource Land will host a
number of department stores of CRC in China.
3. A growing number of department store operators look for opportunities in lower-tier cities
Today, market competition in first-tier cities such as Beijing and Shanghai are very intense for department store
operators, and increasingly so in some second-tier cities such as Chengdu, Shenyang and Wuhan. Thus, a growing
number of department store operators are looking for opportunities in China’s fast-growing lower-tier cities. For instance,
Hong Kong-listed Springland Department Store (華地百貨) plans to devote its resources to new operations in second-
and third-tier cities such as Jintan, Changxing and Changzhou in the Yangtze River Delta in order to take advantage of
high growth prospects and relatively less intense competition. Parkson has opened new stores in Zhaoqing, Wuxi and
Hefei in 2010 and in Zigong in 2011; and New World Department Store plans to expand into Mianyang in 2012.
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China Distribution & Trading Issue 89 August 2011
IV. Challenges
Many department store operators in developed markets have long paid huge attention to offering unique merchandise
assortment and developing private labels and proprietary brands, etc to enhance customers’ shopping experiences.
However, many department stores in China are poorly differentiated. Reliance on commissions from concessionaire
sales is a major reason behind. It is true to say that department store operators do not need to incur any inventory risks
under concessionaire arrangements; however, heavy reliance on concessionaire sales also leads to highly similar brand
mix in many department stores. Heavy initial capital outlays, lack of expertise in merchandising and long nurturing
period for new brands are some common concerns for operators to experiment with new operating models.
In recent years, although many department stores in China have frequently reviewed and reshuffled their merchandise
and brand portfolio to improve their income, the problem of having highly similar brand and tenant mix remains very
common. The fact that the market is crowded with a large number of undifferentiated players has made many resorted
to price competition to boost sales. Discount-driven promotions are hurting the growth prospects of many.
Not to mention that there are increasing challenges from other retail formats such as shopping malls, professional stores,
discount outlets and online retail stores, which are winning appeal from many Chinese consumers. In fact, to many
brand companies or vendors, these other retail channels also offer them better discretions in many areas such as visual
merchandising, which are highly important in brand building.
On the other hand, a number of other format retail operators have expanded into department store format, such as
Jiulong Department Store (久隆百货) launched by Beijing Jingkelong Company Limited (京客隆). Competition is
intensifying.
Indeed, brand companies today have more choices distributing their products in China. In particular, competition
between department stores and shopping malls are the most often discussed. Nonetheless, several edges of
department stores should not be ignored. First, brand companies face more complicated business registration
procedures opening stores in shopping malls than setting up concessionaire counters in department stores. Besides,
opening stores in shopping malls usually involves higher upfront costs, such as decoration. And for many brand
companies and vendors, they can better control their risks as the concessionaire commissions paid to department store
operators is usually in proportion to sales; meanwhile, rental payment to shopping mall operators is usually fixed,
regardless of business performance. Not to say that the lease contracts of shopping malls often last several years,
which may be less flexible for brand companies which do not have sound knowledge of the Chinese market. Further,
department store gift cards is a popular gifting item in China – a big number of consumers make their purchases using
the gift cards in department stores.
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China Distribution & Trading Issue 89 August 2011
V. Recent developments
1. Some department store operators have refined their market positioning strategies to cater to specific
customer demographics
There are growing calls for department store operators to improve differentiation. Some operators have refined their
market positioning strategies to cater to specific customer demographics. Department stores with distinct themes and
positioning have emerged to cater to specific market segments, such as discount department stores, luxury department
stores and department stores for female, etc. For instance, the Novo Department Store in Beijing’s Chaoyang District
Wanjing, targets fashion consumers aged between 20 and 35; Wangfujing Department Store has also unveiled a new
store brand Fashion Headquarters, or HQ, in Beijing in September 2010 positioned to attract fashion consumers
between the ages of 18 and 35; targeting young consumers, Guangzhou Grandbuy has launched a new store brand
Grandbuy Fashion (GBF) in G.T. Land Plaza in Guangzhou in December 2010.
Despite the huge potential of different segmented markets, many department store operators are cautious testing the
market. Indeed, New World Department Store failed to attract footfall as it had hoped for its Beijing New World Women’s
Fashion Department Store targeting female consumers opened in May 2010; the positioning for the store was later
revised in 2011.
2. Department store operators pay growing attention to transform purchasing practices; the development of
private labels and proprietary brands is drawing attention
Department store operators in China are working hard to streamlining their supply chains, of which centralized
purchasing is winning attention. China has a multi-tier distribution system, and most brand companies have assigned
different local distributors and agents for different regions. It is not uncommon to see that a distributor or agent
representing a same brand has to make sales pitch individually to the different stores under the same department store
operator. Wangfujing Department Store hopes to change the picture by increasing centralized purchasing – as early as
in 2008, its head office in Beijing attempted to deal with brand companies directly and negotiate better concessionaire
margin on behalf of its stores in Beijing. Running a so-called “headquarter to headquarter” purchasing model, the
purchasing authority of individual stores is withdrawn; instead, purchasing is carried out by the head office directly with a
national sole agent or distributor of brand companies instead of with various regional distributors and agents. The
initiative was further extended to four sales regions in 2010. According to a spokesperson of Wangfujing Department
Store, the head office now centrally purchases different products for dozens of brands.
The development of private labels and proprietary brands is also drawing attention. In many other mature markets,
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China Distribution & Trading Issue 89 August 2011
private labels and proprietary brands offer department store operators better margins and allow them to better
differentiate from competitors. Concessionaire sales account for the majority of sales of department stores in China, but
some players are now experimenting with private labels or proprietary brands in a bid to improve margin and strengthen
customers’ loyalty. For instance, Golden Eagle hopes that its private labels can offer it gross margin standing at around
30-40%. Meanwhile, some examples of proprietary brands include “N Only” by New World Department Store and “Justin
Time” by Intime Department Store; and Bailian has also introduced around 20 proprietary brands from France and Italy
in Orient Shopping Centre (東方商廈).
However, breaking the bold is not easy. It takes time for department store operators to accumulate knowledge on areas
such as merchandising and inventory management, etc. We expect more and more department store operators will
experiment with new merchandising practices, but the transformation will be gradual.
3. A number of department store operators explore opportunities online
According to iResearch, online retail sales in China reached 498 billion yuan in 2010, accounting for 3.2% of the total
retail sales of consumer goods. It is estimated that the share of the online retail market will further climb to 5.3% of the
country’s total retail sales in 2012. Eyeing the huge growth potential, many department store operators have adopted the
“clicks-and-bricks” strategy. For example, Intime has set up its online platform “http://www.yintai.com” in October 2010;
Guangzhou Grandbuy Department store also set up an individual company to run its online business starting in April
2011; and Wangfujing Department store announced in 2011 that it will invest over 100 million yuan in 3-5 years to
expand its online business. Department store operators going “clicks-and-bricks” is relatively new in China, and the
effectiveness remains to be seen.
4. Department store operators try to incorporate more elements of shopping experiences
In view of growing competition from shopping malls, over the past few years, some department store operators have
converted their department stores into shopping malls to incorporate different elements of shopping experiences under
one roof and to cross-fertilize foot traffic. Wangfujing Department Store, for instance, has launched revamping programs
since March 2010 to convert a number of its department stores into shopping malls.
Some large department store operators now lease 15-20% of their space to restaurants and other entertainment
operators. Many department store operators have also introduced supermarkets in their basement to attract more traffic.
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China Distribution & Trading Issue 89 August 2011
5. Department store operators seek M&A opportunities; a number of department store operators have sought
public listings in recent years
In the face of intensifying competition and growing scarcity of prime retail sites, mergers and acquisitions (M&As) have
become one of the most common expansion strategies adopted by department store operators. Exhibit 9 demonstrated
some recent examples. Many department store operators prefer expanding to other provinces through M&As.
Exhibit 9: Select examples of department stores acquisitions, 2010
Acquisition date
Company Target Details
April 2010 Dalian Dashang Group Co., Ltd.
大連大商集團有
限公司
Guilin Wei Xiao Tang Department Store
桂林微笑堂商厦
Dashang entered the Guangxi market through this acquisition
April 2010 Zhenhua Group
振華集團
Tianjin Department Store
天津百貨大樓
Zhenhua Group acquired 60% equity interest in Tianjin Department Store
July 2010 Golden Eagle Retail Group Limited
金鷹商貿集團有
限公司
Anhui Ruijing Commercial Company
安徽瑞景商業有限
責任公司
Golden Eagle acquired 100% equity interest in Anhui Ruijing Commercial Company
July 2010 Nanjing Central Emporium Group Stocks Co., Ltd. 南京中央商場
Suzhou Zhong Shang Zhi Di
蘇州中商置地
Nanjing Central Emporium Group acquired 45% of Suzhou Zhong Shang Zhi Di
August 2010 PCD Stores
中國春天百貨
Guiyang Guomao Guangchang Commercial Trading Co., Ltd. 貴陽國貿廣場商貿
有限公司
PCD Stores acquired 100% equity interest in Guiyang Guomao Guangchang Commercial Trading Co., Ltd.
October 2010 Intime Department Store (Group) Co., Ltd.
銀泰百貨(集團)有
限公司
Lufthansa Friendship Shopping Center Ltd.
燕莎友誼商場有限
公司
Intime Department Store Group acquired 100% equity interest of Sin Cheng Holdings PTE Ltd., which held 50% of equity stake of Lufthansa Friendship Shopping Center Ltd
November 2010 Intime Department Store (Group) Co., Ltd. 銀泰百貨(集團)有
限公司
Hubei New Century Shopping
Centre 湖北隨州新
世紀購物中心
Acquired 84.5% equity interest in Hubei New Century Shopping Centre
Source: China Commerce Association for General Merchandise, company annual reports
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China Distribution & Trading Issue 89 August 2011
Besides, riding the waves of investors’ interests in mainland consumption-related themes, a number of department store
operators have sought public listings in recent years. Exhibit 10 lists some examples of initial public offerings (IPOs) of
department stores operators in China in 2010.
Exhibit 10: Select IPOs of department stores operators in China, 2010
Company Date of listing Place
Shirble Department Store Holdings (China) Ltd.
歲寶百貨有限公司
2010/11/17 Hong Kong
Springland International Holdings Limited
華地國際控股有限公司
2010/10/21 Hong Kong
Rainbow Department Store Co., Ltd.
天虹商場股份有限公司
2010/06/01 Shenzhen
Renrenle Commercial Group Co., Ltd.
人人樂連鎖商業集團股份有限公司
2010/01/13 Shenzhen
Source: China Venture
6. Impact of new prepaid card restrictions on department store operators remains to be seen
As mentioned, department store gift cards is a popular gifting item in China – a big number of consumers make their
purchases using gift cards in department stores. Corporations are the major buyers of prepaid gift cards. The prepaid
cards, which usually carry a wide range of face values, are used as incentives for employees and as gifts for business
partners. For operators such as Golden Eagle, gift cards can account for over 20% of total sales proceeds. Exhibit 11
lists the share of gift card sales to total sales proceeds of some department store operators.
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China Distribution & Trading Issue 89 August 2011
Exhibit 11: Gift card sales to total sales proceeds, 2010
Department store operators Gift card sales to total sales proceeds
Golden Eagle Retail Group Ltd.
金鷹商貿集團有限公司
25% of total sale proceeds. Majority of cards issued to
corporate customers.
Parkson Retail Group Ltd.
百盛商業集團有限公司
About 16% of total sale proceeds. Majority of cards
issued to corporate customers.
New World Department Store
新世界百貨中國有限公司
10% of total sale proceeds. Mainly issued to retail
customers.
Intime Department Store (Group)
Co., Ltd.
銀泰百貨(集團)有限公司
Less than 10% of total sale proceeds. Mainly issued to
retail customers.
Maoye International Holdings
Ltd.
茂業國際控股有限公司
Less than 5% of total sale proceeds. Mainly issued to
retail customers.
Source: Citibank, company annual reports
However, the widespread use of gift cards can easily slip into problems such as money laundering, illegal cash
withdrawals, tax evasion and bribery. In view of this, the State Council and other relevant ministries have jointly issued
the “Opinions on the Issuance of Prepaid Cards by Non-Financial Institutes” (關於規範商業預付卡管理的意見) in May
2011, aiming to strengthen the government’s ability to monitor and regulate the issuance of prepaid cards.
Financial and non-financial institutes will not be allowed to issue multi-purpose prepaid cards without the approval from
the People’s Bank of China. A commercial enterprise may issue single-function pre-paid cards for itself subject to certain
requirements: (1) companies or individuals with purchases of prepaid cards with value over 10,000 yuan in a single
purchase will need to register their names with the prepaid card issuers; (2) companies with single purchase of gift cards
over 5,000 yuan or individuals with single purchase of gift cards over 50,000 yuan must pay by remittance through bank
wire transfer instead of cash (3) anonymous commercial pre-paid cards cannot exceed 1,000 yuan in value per card.
Registered prepaid cards cannot exceed 5,000 yuan in value per card; (4) the issuer shall provide invoices for sales of
pre-paid cards according to relevant laws and regulations; and (5) there is no restriction on the term of validity of
registered commercial pre-paid cards, while the term of validity of non-registered commercial pre-paid card shall be no
less than three years.
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China Distribution & Trading Issue 89 August 2011
The restrictions place new hurdles on the use of prepaid cards. However, some industry insiders say that there are ways
to get around with the new requirements, say issuing gift cards with smaller face values. That said, industry watchers
also caution that the new restrictions may pose new challenges for department store operators, as prepaid cards have
become an important source of financing for many. Some department store operators reflected that their sales were not
affected by the restrictions. The true impact of the tightened restrictions is yet to be seen.
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