A role for department stores in China’s retail futureMay 8, 2015 / By
One of the last refuges for the department store in Beijing, Xidan shopping district is bustling with crowds. Here, especially on weekends when promotional offers run high, Xidan Department Store – with customers climbing over each other for the last available pair of discounted high heels – manages to hold its own against the area’s busiest shopping malls like Xidan Joy City, where young fashionistas flock for the latest fast fashion arrivals.
But elsewhere in the city, as the modern shopping mall increasingly dominates, many department stores continue to suffer from low footfall, falling sales, and imminent store closures. Department stores in smaller cities are hanging on thanks to local monopolies, strong networks, and fewer shopping alternatives in their less developed markets – until now. These days, consumer habits are changing, and the department store world is shrinking.
As department store numbers dwindle in Beijing and other cities, what will the future of retail in China look like? While department stores will inevitably be significantly lower in number a decade on from now, the ones that remain will have an opportunity to specialise and pursue the right kind of target customer – the moneyed middle-aged shopper.
While these well-to-do forty and fiftysomethings may have outgrown the younger fashion trends fueling hot sectors like fast fashion, they shouldn’t be so quickly overlooked, for they still hold decades of lucrative shopping years under their belts. More importantly, this demographic remains accustomed to department store-shopping. Not nearly as tech-savvy as their younger peers, this group is also less susceptible to the rising threat of e-commerce.
In a decade, mature consumers will have considerable economic clout. Unlike the retirees of today, the retirees of tomorrow will have benefited greatly from China’s economic boom and made their fortunes, giving them strong spending power and the ability to afford branded merchandise. Moreover, this customer-type has well-entrenched shopping habits that are not prone to change. Indeed, department stores would do well to follow these predictable consumers into older age and take on a greater role as the preferred shopping destination for wealthy seniors. Wired differently than the more frugally minded retiree of the past, these consumption-oriented customers have had years to develop sophisticated shopping habits. This makes them far more likely to continue spending once they reach retirement age, well into their sixties and seventies, and possibly longer.
Thus, strategically located department stores that cater to this demographic by offering a suitable assortment of quality merchandise at competitive prices will be best-positioned to win over this niche market. At the same time, department store operators will need to adjust expectations and accept that the shifting retail landscape – in favour of shopping centres – means that department stores will increasingly be pushed to accommodate specific demands in a smaller market. The department store market may be contracting, but that doesn’t mean that fewer stores can’t still find a way to carry on as perfectly feasible retail projects.
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