Department stores all over the world are gone, and they are all e-commerce pots?
On March 25, Isetan Department Store in Westgate Town, located in Shanghai's West Nanjing Road business district, announced the closure of its business, and just last month, another time-honored department store in Shanghai's core business district, Sixth Department Store, also announced its closure.
Despite objective reasons such as "lease expiration", for ordinary consumers, most people's feelings are that they have not visited a department store for a long time. For the industry, the wave of store closures in the department store industry began quietly long before the epidemic. In January 2018, Beichen's last department store in Beijing announced the closure of its business. In August 2023, the Xuhui store of Shanghai Pacific Department Store, which has been open for 30 years, will completely withdraw from the Shanghai market.
In recent years, the number of department stores has been rapidly decreasing in first- and second-tier cities. According to incomplete statistics, 42 department stores across the country will cease operation in 2022, of which 27 are long-established department stores for more than ten years. In 2023, another 21 department stores will be closed. According to data from another third-party organization, there are more than 150,000 department store-related enterprises in the country, and 110,000 related enterprises are currently closed and cancelled, which means that more than seventy percent of department store-related enterprises have closed down.
At the beginning of 2024, Macy's in the United States announced that it would lay off 2,350 employees and close 5 stores. Many long-established department stores in Japan and Germany closed their doors in the new year.
Just as the department store industry is beginning to enter its twilight, shopping malls and various transformed specialty malls are booming. How did China's department store industry develop? Is it the rise of e-commerce and the epidemic that have forced the department store industry to death? and where is the way out for the department store industry in the future?
From crowding to "department stores"
When it comes to department stores in Shanghai, I am afraid that the first thing that comes to mind is the prototype of the economic landmark Shanghai Union Commercial Building, which was broadcast at the end of last year in "Flowers". In Shanghai in the 90s, entering a department store was like Sam's Supermarket now, you needed to buy a ticket to enter the market, and a ticket was sold for three cents, and after scalpers resold it, the price once rose to one dollar.
China's first real department store, Beijing Wangfujing Department Store, was built in 1955. The department store, which was entirely invested and built by Chinese people, attracted 160,000 people on its first day of opening. In the 80s, department stores began to accelerate their development, and Shanghai 600, which closed its doors this year, operated nearly 10,000 kinds of goods, and its annual disposable income was only 2,000 yuan, and its annual sales exceeded 270 million yuan.
In the 90s, more international department store brands began to enter the Chinese market, coupled with the operation of Sino-foreign joint ventures, the business model and sales form of department stores have changed greatly. In Beijing's Wangfujing and Zhengzhou's Asia, more and more department stores have begun to rise in major cities and become commercial landmarks.
Some people set the turning point of the department store industry in 2012, and according to the data, the department store industry saw negative growth in customer traffic at that time. In this year, the transaction scale of the e-commerce market, which has been developed for nearly ten years, reached 7.85 trillion yuan, a year-on-year increase of 30.83%, and new forms of consumption such as fresh e-commerce and group buying began to appear. A year later, in 2013, e-commerce entered a period of rapid development, Alipay's one-minute transaction volume exceeded 100 million, and the sales of Double 11 exceeded 10 billion in less than six hours, and Tmall brushed out 35 billion yuan in sales that year, and it is conceivable that department stores across the country may not sell 35 billion a year combined.
Convenient, fast and cheap have become the killer feature of e-commerce, and quickly squeezed the living space of traditional department stores. In 2015, Wanda Department Store alone closed 40 stores, and Wang Jianlin soon put forward the slogan that Wanda must be "department stored" in the future. However, is e-commerce really the last straw that crushes the department store industry?
Department stores lack "emotional value" and the ability to select products
Some industry insiders pointed out that in fact, the department store industry's own format has limited its development, and the previous advantages have gradually turned into disadvantages, such as outstanding ecological singleness, high prices, and solidified business models.
The dominant format of traditional department stores is retail, and in that era when material resources are not abundant, department stores are generally to have a clear demand first, and then to buy things in a targeted manner. But today we are already in an era of surplus goods, product homogeneity is serious, any commodity can shop around, consumers pay attention not only to the functional needs of the product itself, more people will pay attention to brand, design, these are emotional values. The limited space and shelves of traditional department stores are destined to be difficult to meet the demand.
The second is the problem of spatial positioning of shopping malls, and now the younger generation of consumers has changed from what they lack and what they want to buy with a clear goal, to casually shopping to see the mood to buy. This change in demand has hit the weakness of traditional department stores. You can not only drink milk tea and buy clothes, but also watch movies and play games, which seems to be the trajectory of consumption behavior that the new generation of consumer groups should have. Wanda Plaza, Joy City, and Taikoo Li have blossomed in various cities from 2013 to 2019, with a compound annual growth rate of 22.9% for shopping malls in China. By the end of 2021, the total number of shopping malls in the country has reached 6,300, and the number of shopping malls enjoyed by Chinese is close to the level of developed countries in Japan and Europe.
Of course, due to the impact of offline retail and the general environment, the development of shopping malls has also entered a surplus period, and some shopping malls have closed their doors. Then the situation of a department store with a single format can be imagined.
Finally, the solidification of the business model of department stores is also a major problem. Since the 90s of the last century, most traditional department stores have implemented a brand joint operation model, that is, department stores provide venue and management services, brands are sold in stores, and department stores take commissions according to sales. The positioning of department stores is more like a platform, which has the advantage of reducing its own costs and destocking pressure, but the disadvantage is that it will cause inflated commodity prices. For example, if you wear clothes of the same brand, the price in department stores will be higher than the price in other sales channels. Because the mall has to charge fees such as venue rental, assessment fees, taxes, etc., the retail counter has to start raising prices, and then this cost is eventually passed on to consumers.
It can be said that, as a big man who has done department stores and e-commerce said, the money back then was too easy to make, but this model gave many users to other channels, such as e-commerce.
In addition, such a model will also cause department stores to lack their own product selection capabilities, and even become a simple tenant, focusing on rent collection, while lacking control over goods, brand building, and over time lose the preference of users. Overseas department stores, on the other hand, rely heavily on product selection and often buy out the exclusive sales rights of some products according to trends.
Transformation: Transforming Shopping Malls into Digitalization?
From public information, it can be seen that many department stores that are currently closed are mainly going to introduce shopping malls after transformation and upgrading, and increase the sense of experience through digitalization, increasing catering and entertainment formats, transforming internal space, and reforming business methods.
In line with the mentality of joining if you can't beat it, the transformation of e-commerce has become the transformation idea of many department stores. Since 2018, Intime Department Store has adopted a new retail model, combining "offline physical department stores + online channels", and at the same time launched logistics services, providing services such as "2-hour scheduled delivery", "24-hour delivery at joint counters", and "60-day no reason to return and exchange clothing and footwear products". In 2022, Chongqing Department Store took the lead in building an online and offline integrated platform, built and launched a multi-point and multi-format integration APP, with 20 million members and online sales exceeding 2.8 billion yuan. Wangfujing, a veteran department store, has also promoted omni-channel development, continued to strengthen the construction of online operation capabilities, and launched more than 3,000 live broadcasts in 2023.
There are also some department stores that have adopted the approach of transforming into professional department stores and theme department stores. For example, Hualian Commercial Building, a subsidiary of Shanghai Bailian, has transformed into the first commercial building with the theme of "two yuan" in China - Bailian ZX, introducing a large number of brand first stores and flagship stores, and customers from middle-aged and elderly consumer groups to young customers from the Yangtze River Delta and even the whole country.
Because of its large size, many large department stores have chosen to transform into shopping malls. The Huaihai store in Shanghai has been transformed into a shopping mall, greatly increasing the weight of catering. However, the transformation of department stores is not as simple as decoration, first of all, the space transformation on the hardware, considering the actual conditions of some department stores, many have been open for decades, not to say that they can be smashed, some department stores belong to the stock of old buildings, in the floor size, floor height, walking line, number of elevators, parking facilities, etc.
There is also the difference in business philosophy, the income of department stores depends on rent and sales of goods, which is a typical focus on rent and sales point orientation, and is the thinking of rent collection and sales. Shopping malls rely on store rental income, focusing on attracting consumers to stay, implementing traffic thinking, building platforms and brand thinking, and crowd demand orientation. The change is a bit like you have to immediately switch from a counter sales to a product operation, which will directly sell goods, operate and manage brands and spaces, which is not ordinarily difficult.
In short, there is still a long way to go, and of course, consumers will vote with their feet.
Resources
1. In the era of shopping malls, say "no" to the tide of department store closures, and watch the news
2. The "wave of store closures" has swept and the performance has declined sharply, can digitalization save the retail department store industry?
3. Another batch has been poured, and in 2023, domestic and foreign department stores will be closed and inventoried, and Win Shang Cloud Think Tank
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