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March 2019Chinas Department Stores Report 2018-2019CHINA COMMERCE ASSOCIATION FOR GENERAL MERCHANDISEFUNG BUSINESS INTELLIGENCEIntroduction Chinas department store sector has gone through some ups and downs in the last decade. The lackluster performance since 2010 was due in part to the rise of e-commerce as well as the governments strengthened anti-corruption efforts to eliminate lavish gifts for government officials since late 2012. In recent years, many department store operators have become more customer-centric. They have made relentless efforts to transform and upgrade their businesses by incorporating more experiential elements to enhance shopping ambience, enriching product offerings, engaging in direct sales business, among others. Many department store operators have seen some signs of rebound in both total sales and profits. Chinas Department Stores Report 2018-2019 analyses the macroeconomic data and collects financial data from 90 domestic department store operators to gauge the sectors performance in 2018. The report also discusses the key innovation and transformation initiatives of leading department store operators, major issues and challenges faced by the sector, and development trends for 2019. In producing this report, Fung Business Intelligence is delighted to join force once again with China Commerce Association for General Merchandise (CCAGM). We would like to express our utmost gratitude to all department store operators and industry experts who have supported us and participated in the preparation of this report. Table of ContentsExecutive summary 1I Market overview 31. Overview of Chinas department store sector 2. Sales performance of key department store operatorsII Key innovation and transformation initiatives 131. Omni-channel development deepens; technology as a catalyst for change2. Strengthening direct sales business to enhance brand equity and increase profits3. Introducing innovative business models and diversifying retail formats 4. Experiential consumption becomes a focal point of transformation III Major issues and challenges 291. Bottlenecks to transformation 2. Rising cost pressures weigh on department store operators3. High product prices affect overall competitiveness4. An urge to enhance core competencies, yet changes do not happen overnight IV Development trends and directions 311. Chinas department store sector to sustain steady growth 2. Digitalization becomes a priority 3. M after eliminating the effects of price changes, the real growth was 6.9% yoy, a relatively low growth rate in recent years. Nevertheless, the department store sector showed some signs of bottoming out after undergoing years of profound transformation. For example, SKP Beijings sales hit a record high of 13.5 billion yuan in 2018, up from 12.5 billion yuan in 2017; Intime Department Stores same store sales increased remarkably by 37% yoy; Wangfujing Groups net profit set a 5-year high in 2018; Far Eastern Department Stores business in China turned profitable for the first time in 10 years; and Parkson Retail Group also continued to see steady growth in 2018 after turning to profit in 2017. Major characteristics of the department store sector are as follows: (1) Department store operators start seeing meaningful results with their O2O/omni-channel strategies Online and offline (O2O) integration has become a major trend in the retail market. Realizing the importance of adopting O2O strategies, retail players have been adjusting their business strategies to adapt to evolving market trends, from PC-based e-commerce and O2O integration to mobile commerce and social commerce. Many department store operators in China have adopted a more diversified and pragmatic O2O strategy, which can be connected and applied to different retailing and marketing processes. For instance, Intime Department Store has launched an app, allowing customers to search for products, place orders and track delivery. Another example is New World Department Store China. The retailer has launched “Xinshangou”, an online shopping platform dedicated to flash sales, offering best-selling items and discounted products, and allowing customers to order online and pick up their orders offline. Hanguang Department Store and Eurasia Group have also leveraged on WeChat to grow their businesses. The former has drawn on WeChat to send out personalized promotion information to customers, while the latter has opened its WeChat Mini Program store to boost sales. Selected examples of omni-channel initiatives adopted by 10 major department store operators are shown in Exhibit 1.5Chinas Department Stores Report 2018 -19 Chinas Department Stores Report 2018 -19Department store operatorOmni-channel initiativesFormat DetailsBailian Group iBailian (bl/) PC-based e-commerce App Official accountE-commerce platformBailian Daojia WeChat Mini Program Delivery serviceChongqing General Trading GroupSJGO365(sjgo365/) PC-based e-commerce E-commerce platformChangchun Eurasia GroupOuya Weidian(oysd) Official account E-commerce platformOuya Daojia App Official online shopping websiteOuya Membership program WeChat Mini Program Membership servicesWuhan Department Store GroupWushang(wushang/) PC-based e-commerce App Official accountE-commerce platform, with a Official accountproviding customer services Wushang Supermarket Scan to Buy WeChat Mini Program -Wangfujing Group Wangfujing Department Store Official account WeChat Mini Program Flagship store on Tmall-Dashang Company LimitedTiangou App Official account-Beiguo-Renbai GroupRuyig(ruyig/) PC-based e-commerce -Ruyigou App Official account-Rainbow Department StoreRed Scarf PC-based e-commerce AppRainbow Department Store Official account WeChat Mini ProgramEnabling self-service and providing home delivery and parking services on its WeChat Mini ProgramZhenhua Group Zhenhua Department Store Official account E-commerce platformIntime Retail Group Yintai(yintai) App Official account WeChat Mini Program Flagship store on Tmall Available on Miao Street Available on Fuwu.alipayMainly providing information on its Official accountand WeChat Mini Program (services varied by region); Miao Street is the only official app of the retailer Exhibit 1 Selected examples of omni-channel initiatives adopted by 10 major department store operatorsSource: Internet sources; compiled by CCAGM
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