1、CHINAS DEPARTMENT STORES REPORT 2017-2018 March 2018 DEPARTMENT OF CIRCULATION INDUSTRY DEVELOPMENT, MINISTRY OF COMMERCE OF THE PRC CHINA COMMERCE ASSOCIATION FOR GENERAL MERCHANDISE FUNG BUSINESS INTELLIGENCE Introduction In 2017, Chinas department store sector witnessed a positive rebound with so

2、me signs of stable recovery. After consecutive years of lackluster sales and dropping profitability, the sector as a whole has started to reap the benefits of business upgrading and transformation. The majority of department store operators have stepped up efforts to construct omni-channel business

3、models, optimize supply chain systems, enrich merchandise and service portfolios, explore new retail formats and enhance customer experience. They have actively deployed new technologies to meet the rapidly changing consumer needs. For the third consecutive year, Fung Business Intelligence collabora

4、ted with China Commerce Association for General Merchandise (CCAGM) to produce the Chinas Department Stores Report 2017-2018. This year, we are honored to have the insightful contributions from the Department of Circulation Industry Development, Ministry of Commerce of the Peoples Republic of China

5、in producing this report. The report analyses macroeconomic data, collects financial reports from 85 domestic department store operators to gauge the sectors performance in 2017. It also discusses the key trends and major challenges faced by the sector and addresses the implications and future outlo

6、ok of Chinas department store sector in the “New Retail” regime. 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 Contents Executive Summary 1 I Market Overview 3 1.

7、 Overview of Chinas retail market 2. Overview of Chinas department store sector II New developments and key trends 11 1. Pursuing omni-channel retailing 2. Diversifying retail formats and tapping into other business sectors to achieve synergy 3. Enriching and expanding self-operated business to enha

8、nce product uniqueness and gross profit margins 4. Improving supply chain management and focusing on the basics of retailing 5. Promoting cooperation with all stakeholders along the supply chain III Major issues and challenges 33 1. Business transformation requires fundamental changes in business mi

9、ndset and mechanism 2. Supply chain integration is needed for successful transformation 3. Obstacles to engaging in merchandise direct sales IV Implications and conclusion 35 1. Optimizing merchandising and enriching offerings in response to consumption upgrading 2. Venturing into O2O retailing with

10、 constant business model innovations 3. Advocating consumer-centric business transformation and focusing on the basics of retailing About the Organizations 39 1 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 Executive Summary Against the backdrop of Chinas supply-side

11、 structural reforms coupled with the unprecedented growth of e-commerce over the past years, the department store sector has made relentless efforts to transform and adjust to keep pace with Chinas economic and social changes, be it hardware and stores upgrade, merchandise and service refinement, su

12、pply chain integration, business models and operation system restructuring. In 2017, the sector as a whole has started to reap the benefits of business upgrading and transformation. Sales of some leading players have improved, while the emergence of new retail formats have been welcomed by customers

13、. Key trends and developments of Chinas department store sector include: Pursuing omni-channel retailing In recent years, pursuing online-to-offline (O2O) integration has become a mainstream for Chinas department store sector. More and more department store operators have adopted digital transformat

14、ion strategies to achieve seamless integration across physical stores, online platforms and mobile terminals. Some operators have become more customer-focused, and considered big data analytics and digitalization of operation management as crucial elements for success. At the same time, some leading

15、 players have leveraged advanced technologies including artificial intelligence (AI), augmented reality (AR) and virtual reality (VR) to enhance customer experience. Increasing numbers of department store operators have also realized the importance of partnering with leading Internet companies and e

16、-commerce players to deepen O2O integration. Diversifying retail formats and tapping into other business sectors to achieve synergy 2017 saw the emergence of various new formats and business models. Increasing numbers of department store operators have sought to expand their scope of business and en

17、gage in multi- format and multi-sector operations to adapt to the changing needs of consumers. Supermarkets/ hypermarkets, shopping malls and convenience stores are the three most common retail formats that department store operators have ventured into over the past years. Enriching and expanding se

18、lf-operated business to enhance product uniqueness and gross profit margins Many department store operators have expedited the expansion of direct sales business; they have taken bolder steps to develop their own private labels and operate multi-brand shops with exclusive brands sourced from oversea

19、s in order to enhance product and services uniqueness, provide customers a differentiated shopping experience and satisfy the increasingly sophisticated consumer demand. By expanding self-operated business, department store operators can impose control and oversee the manufacturing and supply chain

20、of their merchandise, and hence enjoy long-term competitive advantages and ensure better profit margins. 2 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 Improving supply chain management and focusing on the basics of retailing In response to the consumption upgrade p

21、henomenon and consumers aspirations for quality products and services, many department store operators have devoted tremendous efforts to revitalizing and restructuring their supply chains, and accelerating the digital transformation processes. They have sought to harness resources in the best way p

22、ossible, particularly by digitizing their supply chains. This could streamline procedures and supply chain operations, optimize resources and reduce costs. Some players have formed strategic alliances and partnerships with stakeholders along the supply chains in the hope of enhancing the overall com

23、petitiveness of the supply chains and building synergies. As the Chinese government has constantly rolled out measures to unleash domestic consumption and stimulate spending, there will be vast room for Chinas retail sector to expand and grow, and open up tremendous opportunities for department stor

24、e operators. Going forward, the department store sector should focus on the basics of retailing by redefining an operational framework that integrates online and offline businesses, engaging in multiple businesses, enriching product offerings, and enhancing shopping ambience. The department store se

25、ctor should strive to become the leading industry to meet peoples growing demand for a better life, as highlighted by the government in the 19th National Congress of the Communist Party of China (CPC). 3 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 I. Market Overvie

26、w 4 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 1 Overview of Chinas retail market (1) Retail sales maintain stable growth; consumption is the major economic growth driver Consumption has been the top economic growth driver for four consecutive years. In 2017, fina

27、l consumption made up 58.8% of GDP growth. At the same time, Chinas nominal retail sales of consumer goods rose 10.2% yoy to 36.6 trillion yuan, reaching double-digit growth for 14 consecutive years (Exhibit 1). Sales of 2,700 retail enterprises monitored by the Ministry of Commerce (MOFCOM) increas

28、ed by 4.6% yoy in 2017, 3 percentage points (ppts) higher than in 2016. Growth rates for operating income and total profits increased by 8.0% yoy and 7.1% yoy respectively, up 6.5 ppts and 11 ppts compared with 2016. The physical retail market saw a positive rebound. By retail format, sales growth o

29、f specialty stores was the highest, reaching 8.3% yoy in 2017, up 6.6 ppts, followed by professional stores (6.2% yoy, up 3.3 ppts), supermarkets (3.8% yoy, up 1.9 ppts) and department stores (2.4% yoy, up 2.7 ppts). Chinese consumers are more upbeat as consumption environment improves and their dis

30、posable incomes increase. According to Nielsen, Chinese consumer confidence index reached 112 in 2017, up 6 points from 2016, indicating that Chinese consumer confidence has risen and provided a solid foundation for the steady development of the consumer market. Exhibit 2 shows the consumer confiden

31、ce index from 1Q15 to 4Q17. Exhibit 1 Total retail sales of consumer goods, 2013 2017 Source: CCAGM; National Bureau of Statistics of the PRC, compiled by Fung Business Intelligence 2013 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 24.3 2014 27.2 2015 30.1 2016 33.2 2017 36.6 Retail sales of consumer

32、goods (trillion yuan) 5 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 (2) Consumption upgrading continues; new consumer group evolves and becomes the major driving force of consumer market Thanks to the proliferation of the Internet, Chinese consumers have reached a

33、new level of empowerment. With so much information and data at their fingertips, the empowered consumers are now at the center of the consumer market. As living standards of Chinese consumers continue to rise, they are less price- sensitive and prefer better quality products and services. They have

34、high aspirations for a better life and a strong desire for premium goods and services that can give them a sense of entitlement. Purchasing solely online is no longer the trend, a seamless, O2O shopping experience across various retail channels would be a preferred shopping mode for consumers. Meanw

35、hile, Chinas consumer market will continue to be driven by the growingly influential Chinese millennials (post-80s, post-90s and post-00s generations). According to Boston Consulting Group, consumption by young Chinese spenders under the age of 35 accounts for 65% of consumption growth. In addition,

36、 consumption by these young consumers is forecast to grow at an annual rate of 11% from 2016 to 2021twice than that of consumers older than the age of 35. The share of total consumption by the young generation is projected to reach 69% by 20211. Chinese millennials have different consumption habits

37、and desires compared to the older generations. They are highly connected, sophisticated, mobile and social fluid, and convenience-driven; they demand personalized products and services, and look for differentiated shopping experience. This group of consumers is set to become the dominant force and t

38、he most influential consumer segment in the consumer market. To stay relevant in the rapidly changing market, retailers need to constantly revamp and adapt to the needs of Chinese millennials. Exhibit 2 Consumer confidence index, 1Q15 4Q17 Source: Nielsen, compiled by Fung Business Intelligence 1Q15

39、2Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q17 106 112 Consumer confidence index 100 102 104 106 106 107 106 107 105 106106 108 110 112 114114 108 110 112 114 116 6 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 (3) Robust government support for the development of the r

40、etail market During the 19th National Congress of the Communist Party of China (CPC), the Chinese government stated its determination to build a moderately prosperous society to meet peoples ever-growing need for a better life, but social contradictions in the society still remain, especially in the

41、 form of unbalanced and inadequate development. In terms of consumption, there has been imbalance and mismatch between peoples consumption upgrading and the inadequate supply of quality products and services. New consumer demands have yet to be fully met. To achieve a more balanced and thorough deve

42、lopment of the retail sector in the new era, industry practitioners need to continue to upgrade and revamp their businesses and focus on satisfying the rapidly changing consumer needs. Meanwhile, the government has also emphasized the importance of deepening supply-side reform so as to reduce unnece

43、ssary, excessive, low-end supply, while expanding mid- and high-end supply. Traditional retailers are urged to adopt advanced technologies such as big data, analytics and artificial intelligence (AI), and cultivate new growth points and generate momentum by adapting to consumption upgrading, especia

44、lly in the areas of mid- to high-end consumption, green and low-carbon consumption, innovative business models, shared economy, modern supply chains, and human capitals. Over the years, the government has been launching various policies to support the development of domestic consumption market. For

45、instance, the State Council has lowered import tariffs on selected consumer products, including food, healthcare products, pharmaceuticals, daily necessities, clothes and footwear, home products, recreational products, and other miscellaneous consumer goods, covering a total of 187 products under th

46、e 8-digit HS codes from 1 December, 2017. The tariffs are lowered from 17.3% to 7.7% on average. This is the third time the government lowered the import tariffs for certain consumer goods including clothes and shoes, bags, and selected food and pharmaceuticals since 2015. With lower import tariffs,

47、 it is expected that consumers would spend more domestically and therefore help to boost domestic consumption. Mid- to high-end department stores, as well as fresh food supermarkets which focus on offering imported goods would benefit from lower import tariffs. Going forward, the Chinese government

48、is set to put greater emphasis on innovation in the retail market and further strengthen the role of consumption in economic development. New business models and new retail formats will continue to evolve. 7 Chinas Department Stores Report 2017-18Chinas Department Stores Report 2017-18 2 Overview of

49、 Chinas department store sector (1) Sales of department store operators rebounded in 2017 The China Commerce Association for General Merchandise (CCAGM) conducted a survey with 85 key department store operators from November to December 2017 to obtain information on their financial and operating results in 2017.