Shanghai’s traditional department stores re-strategize their customer services to woo all generations amid the Internet era

By Yu Xi in Shanghai Source:Global Times Published: 2017/7/31 17:43:39

The building of Shanghai No.1 Department Store closed for 'face-lift' Photo: Yu Xi/GT

Following the closure of Shanghai No.1 Department Store in June for refurbishment, another State-owned department store in Shanghai, the Orient Shopping Center, is to close in mid-August for the same reason. The renovation plans aim to modernize the old stores to attract more consumers of different ages. Experts say that the modernization of retail would also need to involve the combination of online and offline businesses to better optimize consumer experiences.

An increasing number of State-owned department stores have been temporarily closing across Shanghai as part of a retail renovation strategy to modernize and boost the consumer experience.

About one month ago, the famous 81-year-old State-owned Shanghai No.1 Department Store closed for redevelopment.

Its neighbor, the 20-year-old Orient Shopping Center located on East Nanjing Road near Shanghai's landmark People's Square, is another leading State-owned department store which is scheduled to close on August 14 for a major refurbishment.

It is the latest move that traditional department stores are seeking in order to adapt to the rapid growth of online retailers in Shanghai.

Modern retailers are facing the problem of brand homogenization, but traditional department stores face different problems such as rising labor and rent costs as well as deficiency to appeal to the younger generation who are generally attracted to more innovated and contemporary modes of retail, experts noted.

For instance, the Pacific Department Store, which is managed under the Taiwan-headquartered Far Eastern Group, closed its prime Huaihai Road store in Shanghai in 2016 due to fierce competition posed by online retailers and the emergence of modern shopping malls, according to media reports.

Under these challenging situations, a batch of Shanghai's earliest, traditional department stores on Nanjing and Huaihai roads started closing their doors from 2017 for major renovations and to adjust their business operations to meet changing demand from consumers, according to a post on the official website of the Shanghai government's press center in November 2016.

Shanghai's online retail sales increased 17.9 percent year-on-year in the first half of 2017, accounting for 13.7 percent of the total retail consumption, according to data Shanghai Bureau of Statistics released on July 18. The online retail sales' proportion of total retail consumption in Shanghai increased by 2.3 percentage points year-on-year in the first half of 2017.

Lure youngsters, retain seniors

The two first-mentioned State-owned stores will be merged into a new business center with skywalks and will re-open at the end of 2017 after renovation is completed to better meet the needs of Internet-era consumers, according to Bailian Group, owner of the two stores.

Shanghai-based Bailian Group is the largest State-owned retail group in the country, and it has 4,700 outlets scattered across more than 200 cities.

Throughout the past, middle-aged and senior consumers accounted for a major proportion of the traditional department stores' consumers.

After renovation, "we hope to build a new business center which could attract younger consumers," Eric Zhao, board secretary and senior director of the strategic planning and intelligence center of Bailian Group, told the Global Times on Thursday.

For example, Bailian plans to introduce the concept of "erciyuan" (two dimensional space) - a term served as a stand-in for 2D animation related to anime, comics, games and novels - to the new business center to better meet young consumers' needs.

A 29-year-old local Shanghai resident surnamed Xie agreed that many State-owned department stores have a long history with outmoded decorations. "It would be beneficial for them to introduce more fashionable and newer brands," Xie told the Global Times on Thursday. 

Wang Danqing, a partner with Beijing-based ACG Management Consultancy, said that it is crucial for retailers to win over young consumers because they will be the major consumer group in the near future.

In China, 53 percent of young Chinese aged 20 to 35 earned more than 8,500 yuan ($1,261) a month and thus became the major consumption force in 2016, according to a report jointly released in January by Shenzhen-based Suishou Technology and Beijing-based marketing consultancy Analysys International.

Nevertheless, the old State-owned department stores still hold the advantage of attracting more middle-aged and senior consumers because these generations are immersed in their childhood shopping memories there, Wang told the Global Times.

In order to continue attracting older generations, the new No.1 Department Store will adopt classic Shanghai interior design, echoing that seen in the Grand Theater and shikumen, a traditional Shanghainese architectural style, according to a statement Bailian sent to the Global Times on Wednesday.

We hope to keep a sense of nostalgia for older consumers, but hope to introduce futuristic features to also attract younger consumers, said Zhao, the board secretary of Bailian.

Offline, traditional strengths

Offline stores can provide experiential, in-person and more direct services for customers which online retailers cannot, Wang said.

For instance, offline stores are able to provide more personal, tailor-made promotions with different themes to attract specific groups of consumers, he noted.

Bailian's recent move reflected the trend. On Friday, the group introduced summer promotions with different themes such as "beer festivals" to attract male consumers and in-store educational promotions to attract students.

Also, traditional departments have the advantage of good geographic locations because they were built decades before modern malls and are also relatively easy to transform into specialist stores, for example, high-end stores for women or men or clothing stores for children, said Wang.

"For those departments with large spaces and strong financial backgrounds, they can relatively easily remodel themselves into modern shopping malls," Wang noted.

Modern shopping malls with customized elements and one-stop services including restaurants and movie theaters are becoming popular among the everyday consumer, so older stores need to catch up with contemporary trends.

It has also become a trend that online and offline businesses are integrating in the aftermath of the emergence of big data and Internet technology.

In October 2016, Internet giant Alibaba Group Holding's founder Jack Ma Yun used the term "New Retail", which refers not only to the integration of online and offline retail, but also takes advantage of technologies such as logistics, artificial intelligence and big data. 

In February, Bailian agreed on a strategic partnership with Alibaba in order to expand market share through joining the online and offline retail worlds, a move taken to update, streamline and better optimize consumer experiences.

Overseas competition looming

Amid China's pursuit of a consumption-driven economy, domestic passion for shopping is expected to continue growing steadily, with roughly 30 shopping malls opening in the first half in Shanghai alone, according to media reports.

However, against the backdrop, some of malls are from the overseas markets. For instance, HKRI Taikoo Hui, a joint venture under Hong Kong-based Swire Properties and HKR International, has been welcoming guests to its shopping complex since May, posing international rivalry.

Overseas stores could provide consumers with fresh foreign goods and Western-style shopping experiences, said Wang. But he noted that they have to devote more efforts in meeting local consumers' needs than their Chinese counterparts do.

Some foreign department stores have suffered failure in the Chinese market, however. UK retailer Marks & Spencer, for instance, announced in November 2016 that it would close all its 10 stores in the Chinese mainland amid shrinking profits. Its flagship store on West Nanjing Road of Shanghai was shut down on April 1.

Wang warned that no shopping mall should ever be overdeveloped. A business region has its capacity to maintain certain consumers. "If a business region is saturated, retailers should be cautious about opening up more stores there," Wang said.

Newspaper headline: Retail renovation

Posted in: INSIGHT

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