In just over three months, 10 veteran department stores have "died" this year: department store retailers are facing these difficulties
On the eve of the Qingming holiday, the first financial reporter came to the Isetan Department Store in Shanghai Meilong Town, and the flow of people in the store was not large, and many counters in the whole venue had discounted information, with discounts ranging from 1% to 8%. Recently, Isetan Department Store in Meilong Town issued a notice saying that due to the expiration of the lease of Isetan in Meilong Town, Shanghai, it will terminate business on June 30, 2024. And this has also triggered the above-mentioned clearance discount activities.
Not only Meilong Town Isetan, but many department stores have begun to "leave". For example, Shenyang Isetan withdrew from the market, Shanghai Pacific Department Store and 600 stores were closed one after another, Xianning Yintai Department Store and Guangzhou Panyu Friendship Shopping Center were closed on March 31, Tianjin Isetan Nanjing Road Store and Tianjin Binhai New Area Isetan will be closed on April 14 and April 27 respectively.
Since entering 2024, in more than 3 months, many time-honored department stores have been closed, and the first financial reporter learned from the on-site visit and interview with the industry during the Qingming holiday that the hardware, services, and product supply chain of the current department store format are aging, and the department store retail industry is facing challenges and transformation.
Since the beginning of this year, 10 long-established department stores have closed
During the Qingming holiday, the first financial reporter visited some business districts and saw that the most popular in the shopping mall during the holiday is catering and experiential formats, such as all kinds of new tea drinks, catering, etc., and some IP cooperative stores are also quite popular, such as the recently unveiled miniso X Chiikawa theme pop-up store opened 10 hours with sales of 2.68 million, and the scene was also crowded, and the reporter could not make an appointment to enter the store at all.
However, a closer look reveals that these more popular brick-and-mortar formats are not traditional department stores, and catering and experiential formats with more concentrated customer flow are relatively lacking in department stores. Under such circumstances, the closure of stores of brands such as Isetan mentioned above is occurring one after another throughout the country.
According to incomplete statistics from One View Commerce, at least 35 department stores will close in 2022. According to the statistics of the Retail Research Center of Lianshang.com, 21 department stores nationwide will be closed in 2023, including Pacific Department Store, Aeon, Parkson, Jiebai, Ocean Department Store, New World Department Store, etc.
It is worth noting that the latest statistics from Lianshang.com show that so far in 2024, 10 old department stores have announced the closure of stores, of which 5 will be completely closed and withdrawn, and the other 5 will be upgraded or completely demolished and rebuilt. Among the 10 department stores that have closed stores, the youngest is Isetan in Binhai New Area, Tianjin, which has been in operation for 11 years, while Shanghai 600 and Shanghai Women's Products Store, which were announced to be demolished and rebuilt, were established in 1952 and 1956 respectively and have been in operation for nearly 70 years, and Tianjin Isetan Nanjing Road Store, Guangzhou Panyu Friendship Shopping Center and Shanghai Huilian Commercial Building have also been in operation for more than 30 years.
Summarizing the reasons for the closure of major department stores, it can be seen that the expiration of the lease is the biggest reason, but behind the expiration of the lease, the huge operating pressure is the essential reason. For example, data from the operating company of Isetan in Meilong Town shows that its operating profit loss from March to November 2023 was 376 million yen, or about 18 million yuan, further widening from the 266 million yen loss in the same period last year.
About 70% of department stores did not exceed the 2019 level
According to the "2023-2024 China Department Store Retail Industry Development Report" (hereinafter referred to as the "Report") jointly authored by the China Department Store Commerce Association and the Fung Group Li & Fung Research Center, the total retail sales of consumer goods in China will reach 471495 billion yuan in 2023, a year-on-year increase of 7.2%. Among them, retail sales of goods increased by 5.8%, and catering revenue increased by 20.4%. In terms of business formats, among the retail units above designated size, the retail sales of department stores, convenience stores, specialty stores, and brand stores increased by 8.8 percent, 7.5 percent, 4.9 percent, and 4.5 percent respectively over the previous year, while the retail sales of supermarkets decreased by 0.4 percent over the previous year. Due to the negative growth of the epidemic in 2022, the department store format has a low base, and it will recover significantly in 2023; The growth rate of the supermarket format continued to slow down, and it will show negative growth for the first time in 2023.
The report pointed out that from the perspective of passenger flow, compared with 2019, 70.1% of the sample enterprises did not report that the passenger flow in 2023 did not exceed that of 2019; Among them, 31.1% of enterprises reported that the recovery was less than 80% of 2019, 28.6% of enterprises reported that it recovered to 80%~90%, and 10.4% of enterprises were close to 2019; Only one-third (29.9%) of the sample companies had more visitors than in 2019. There are also a few companies that perform well, with 10.4% of the sample companies reporting customer flow of more than 20%.
In terms of sales, compared with 2019, 64.9% of the sample enterprises reported that their sales scale has not yet recovered to the level of 2019, of which 31.2% of the sample enterprises recovered less than 80%, 33.8% of the sample enterprises recovered to between 80%~100%, and 35.1% of the sample enterprises said that their sales exceeded 2019, of which 14.3% of the sample enterprises exceeded 5% in 2019.
Gold, jewelry, cosmetics and other categories are an important support for the sales of department store retail enterprises. In particular, cosmetics have been the leading category of department stores for many years, maintaining a high sales proportion and growth rate. However, in the past two years, cosmetics sales have gradually involuted and the growth has been sluggish. Sales of some well-known brands have also declined. Shiseido Group's full-year 2023 net sales were 973 billion yen, down 8.8% year-on-year, and operating profit was 28.1 billion yen, down 39.6% year-on-year. Kao's full-year 2023 revenue fell 1.2% year-on-year, and net profit fell 49%, of which cosmetics business revenue decreased by 6.7%. Sales of Procter & Gamble's flagship SK-II in China fell 34 percent.
The report concludes that the development of the department store retail industry in 2023 has several major characteristics: first, it will continue to recover, and the differentiation of enterprises will increase; The second is to improve quality and efficiency, and the focus of digitalization has shifted to inward efficiency and efficiency, and the third is to continue to adjust and upgrade, find accurate positioning, and improve customer experience; Fourth, competition has intensified, such as cosmetics and other key categories of sales involution, and growth is sluggish.
Department stores face these challenges
From the above-mentioned report data and the on-site visit of the first financial reporter, it can be seen that the department store format is facing a lot of pressure, which has also triggered a wave of store closures.
According to the report, 60% of the sample enterprises believe that the continuous impact of e-commerce is a major challenge to their development, and the impact of e-commerce on the department store retail industry continues to exist, although it has passed the most serious period, but it still continues to have an impact on the offline department store retail industry. The second major problem is the rising cost pressure, 58.8% of the sample enterprises believe that "high operating costs, low profits" is one of the three main challenges faced by enterprises, retail enterprises are labor-intensive industries, under cost pressure, in 2023, 61.5% of the sample enterprises reported that the number of employees has decreased, only 10.3% of the sample enterprises have increased personnel hiring, and 28.2% of the sample enterprises remain unchanged.
Cost pressure also affects the digital investment of enterprises, in general, the proportion of investment in digital construction in the sample enterprises is mainly concentrated in less than 0.5% of operating income, this part of the enterprises accounted for 54.3%, and the proportion of enterprises with investment between 0.5% ~ 1% accounted for 25.9%, and the total of the two exceeded 80%. In addition, declining footfall has been a common challenge in the retail industry in recent years. According to the survey, more than half of the enterprises (53.8%) believe that the current challenge is the decline in customer flow and the difficulty of attracting traffic.
Transformation: Experiential and community-oriented
In the interview, the first financial reporter found that despite the difficulties encountered in the department store format, there is still a market for businesses that take the high-end route. Hang Lung Properties recently released its results for the 12 months ended December 31, during which the Group's overall revenue fell 1% to HK$10.881 billion, and leasing revenue increased 2% to HK$10.879 billion, as the Chinese mainland business recovered from its low level, the market is continuing to get back on track, with full-year tenant sales and leasing revenue increasing by 23% and 7% year-on-year, respectively. In terms of revenue and tenant sales of high-end shopping malls, Shanghai Hang Lung Plaza recorded growth of 10% and 24% respectively, and Shanghai Harbour Hang Lung Plaza increased by 6% and 30% respectively compared to last year It is worth noting that Shanghai Hang Lung Plaza and Shanghai Harbour Hang Lung Plaza ranked first and second in Chinese mainland shopping mall revenue with rental income of 1.76 billion and 1.21 billion respectively, and the two together contributed 59.8% of the Group's rental income.
As a high-end shopping mall owned by Hang Lung Properties, Shanghai Hang Lung Plaza is located on the best section of Nanjing West Road in Shanghai, with a large number of luxury brand stores. Hang Lung Plaza is the first "10 billion building" in Shanghai. In 2019, Hang Lung Plaza, which was originally stationed in Golden Eagle Plaza on Nanjing West Road, moved across the street from Gucci, and after a new renovation and expansion, the latest global flagship store was upgraded to a four-story boutique. Chanel's new four-storey boutique was also unveiled in November 2023.
The Dior flagship store in Shanghai is currently the largest Dior store in China, which reopened on October 27 last year, and the store was built by Kengo Kuma Architects and Urban Design Firm, covering an area of 1,796 square meters and spanning four floors. Today, Hang Lung Plaza has scored three times. It is reported that the third phase of Shanghai Henglong Plaza, a luxury landmark shopping mall, will start construction after the Spring Festival this year. The third phase is located on the northwest side of Hang Lung Plaza, at the corner of Nanyang Road and Xikang Road, with an expanded commercial construction area of about 3,080 square meters. It is reported that the third phase of the Hang Lung project has not yet started, and the brand is already full, and it is difficult to find a shop.
From the perspective of the industry, if it is a non-high-end commercial project, it needs to highlight the sense of experience. Shanghai Xintiandi said that the shopping mall and the Fashion Week Organizing Committee, as well as brands and designers, actively linked up to mobilize the consumption enthusiasm of the audience and consumers. In line with the theme of this fashion week and actively responding to the vigorous development of the "show economy", the mall recently brought a special presentation of the spring and summer fashion season of "Feel the Dare Show 2.0" in the atrium of Xintiandi Fashion II B1, inviting more than 10 outstanding original brands to participate. Through creative content and consumption links, consumers can directly enter the store to buy their favorite clothing after watching the show, and under the incentive of discount measures, effectively promote the transformation of fashion to consumption, boost the consumption level of business districts, stimulate the potential of the regional consumer market, and help the development of China's fashion industry. Although this year's data is not yet available, during Shanghai Fashion Week last year, the overall customer flow in the Xintiandi area increased by more than 20%, and the Hubin Road shopping mall near the show venue increased by more than 60%.
In addition, Xintiandi is also making a transformation, constantly strengthening the fashion format, new products, and the echelon layout of the first store. For example, the i.t blue block on the first and second floors of Xintiandi Plaza, which is currently under renovation, has nearly 3,000 square meters, and it is also the first store of the fashion group I.T in Shanghai. The new store is expected to open in the third quarter of this year.
In projects such as Shanghai Hopson Hui, the first financial reporter saw that a very immersive format such as Happy Twist Theater and themed catering has been introduced, which are also the direction of creating new projects or department store transformation and transformation.
According to the report, there are six major transformations and development trends in the department store retail industry, one is to continue to increase the adjustment and upgrading, most enterprises will increase the intensity of store adjustment and transformation in 2023, and believe that adjustment, transformation and upgrading will be the future business focus of the department store retail industry; the second is the construction of core business capabilities; On the one hand, the department store retail industry has increased its in-depth joint operation with brands and suppliers, and on the other hand, its own business is an active exploration to strengthen its commodity capabilities; Fourth, to create excellent experience value, the "experience value" is condensed in goods and services, and consumers are willing to pay for excellent experience; Fifth, the in-depth application of digitalization, including the construction of system integration, breaking through blockages, online marketing, global capabilities, and co-building ecology, will significantly improve the efficiency of enterprises; Sixth, in response to the national green transformation and development strategy and the policy requirements of achieving the "double carbon" goal, some department store retail enterprises are actively transforming to green and low-carbon development through innovative means.
According to the report, with the increasing demand for convenience and quality of life, community commercialization is gradually becoming a trend. Large e-commerce platforms Alibaba and JD.com have returned to community group buying, and department stores have also seen business opportunities in community commercialization. Some stores have begun to transform into community life centers, hoping to attract consumers by providing more convenient shopping experiences, entertainment scenes and community services, so as to increase customer traffic and enhance consumers' sense of experience. The community center, which has been transformed from a department store, also hosts community functional activities and services, such as fire promotion, health science popularization, community cultural evenings, etc. At the same time, the evolution of the retail ecology is essentially the evolution of retail technology, including commodity management technology, customer service technology, business process control technology, etc., in the era of mobility and digitalization, the retail industry has increasingly become a technology-intensive industry. The digitalization of the retail industry is also a process of co-construction of the digital ecosystem, with retailers and service providers promoting each other and co-prosperity and symbiosis.