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March 26, 2019

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Bonjour, Shanghai! French retailer arrives

French department store chain Galeries Lafayette said it may open about 10 new stores in selective China cities by 2025, with new formats to attract consumers.

“We expect to achieve sales of 1 billion euros (US$1.13 billion) in China, which makes it our largest market outside of France,” said Chief Executive Nicolas Houzé in an interview in Shanghai ahead of the soft opening of the company’s first store in the city.

“China is our top priority, and we expect China to account for a significant proportion of our global sales,” he added.

The Shanghai outlet is the French retail group’s second store in China. Galeries Lafayette opened a shop in Beijing in 2013, saying at the time that it was considering adding 15 stores in coming years. Follow-up expansion may have been curtailed by a lukewarm response to the Beijing store.

The company said it is looking at two potential new locations but declined to provide any details.

The Shanghai store occupies five floors in L+Mall on Shangcheng Road in the Pudong New District. The mall, which opened at the end of 2018, is linked to Metro lines 2 and 9.

Galeries Lafayette is operating both Beijing and Shanghai stores in a joint venture with Hong Kong fashion and investment conglomerate I.T. Ltd, but it’s not clear whether the partnership will continue with future stores.

Shanghai Lujiazui Finance & Trade Zone Development Co, developer of L+Mall, offered floor space for the department store in a collaboration to span 20 years.

Philippe Pedone, head of international development at Galeries Lafayette, said the Shanghai store is targeted at a younger generation of consumers who are well educated, well-traveled and eager to learn about fashion.

The store will offer a “mixture of art, fashion and design.” With the downtown Puxi area of Shanghai pretty well saturated with malls and upmarket retailers, the company is pushing the high-end boundary across the river into the Lujiazui area of Pudong.

Shanghai office worker Valen Lu, who has visited L+Mall during lunch breaks since its December opening, said the new mall seems pretty similar to other shopping venues.

“Fashion brands may attract consumers in the beginning,” she said, “but I doubt there will be a lot of repeat visitors, except people who live or work nearby and want to grab a quick bite during lunch break.”

Galeries Lafayette has one bakery and a French-decor dining area, while L+ has dozens of restaurants and fast-food outlets.

The Beijing Galeries Lafayette underwent a revamp to introduce more lifestyle brands and services after foot traffic failed to meet expectations.

The Shanghai shop will similarly adjust its merchandise portfolio to adapt to consumer preferences after its official launch in October.

Galeries Lafayette was among the early foreign retailers to enter China, but its first attempt with a store on the famous Wangfujing shopping street in Beijing closed in 1997 after less than two years in business.

Industry analysts said a wrong location and weak merchandising were factors for dull public response to the second Beijing store.

The Paris-based luxury retailer said it will work with more local fashion designers and add more trendy brands in the Shanghai store. Merchandise will continually be updated to cater to consumer trends.

Vibrant retail market

Changing demographics, rising income, new spending patterns and greater mobility are contributing to Shanghai’s profile as the most vibrant retail market in China.

“Retailers who want to drive global growth by taking advantage of the immense opportunities in the city’s booming consumer market need to be bold in their aspirations and willing to reformulate their strategies,” said Ivy Lu, head of research at CBRE Eastern China.

The company does not currently have any plans to work with domestic online shopping platforms. Instead, it will focus on recruiting new customers and raising shopper awareness through Tencent’s social media platform WeChat.

According to market research firm Euromonitor International, the revenue of China’s department stores has remained stagnant in recent years and is estimated to shrink to US$153 billion by 2022 from around US$159 billion yuan in 2018.

It also pointed out that multi-channel integration has become a key strategy for department stores in China, building integrated platforms that combine online and offline selling. A solid inventory management system is also cited as crucial among new retail initiatives.

Jennifer Ye, consumer markets leader for PwC China, said niche brands are finding their way into more offline shopping venues nowadays as store operators seek to diversify brand assortment.

Shanghai is redeveloping its shopping environment in an effort to become a global destination for shopping. Government institutions have been urged to put more focus on revitalizing retail areas.

Shopping centers and store operators are also upgrading information technology systems to help them better manage inventory and track consumer trends.

The Shanghai Commission of Commerce said 835 new stores or new brands debuted in the city last year, triple the number from a year earlier. Merchandise choices have been expanded to attract even the pickiest shoppers.

Retailing is being combined with leisure activities to create popular “hangouts” that attract people with food, beverages and leisure activities. The idea is to create environments where people want to meet and socialize.

Many retailers are eyeing smaller formats, or short-term offline presences, such as pop-up stores. They allow operators to test the waters before they embark on more ambitious initiatives.

Department stores have had a difficult time selecting the ideal brand offerings and variety of merchandise that captures the widest possible foot traffic in an age where buying goods is only a click away on a phone.

Can Galeries Lafayette embrace the trends of a fast-changing retail landscape in China? The company clearly thinks it can.


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