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November 17, 2016

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Online juggernaut alters retail scene

EDITOR’S note:

Internet Plus, a concept highlighted in the government work report delivered by Premier Li Keqiang at the annual session of the National People’s Congress in Beijing in March, is pushing the boundaries of China’s traditional industries. Nowadays, enterprises across the country are embracing changes by incorporating advancements in the Internet and related technolo­gies into their business models. In a new series by Shanghai Daily, we explore how this concept is reshaping our world.

THE record-breaking sales during the 24-hour Singles’ Day online shopping spree in China this month once again raises questions about the future viability of foreign-owned brick-and-mortar department stores like Marks & Spencer, H&M and Uniqlo.

I can’t help but wonder if e-tailing isn’t just a convenient scapegoat for problems that standing department stores have brought upon themselves.

Iconic British retailer Marks & Spencer said earlier this month that it plans to close 10 stores in China as part of a global retrenchment to turn around sagging performance.

Taiwan-controlled Pacific Department Store said it will cease operation at its prime Huaihai Road location by the end of this year, when its 20-year leasing contract with property owner Shui On Land expires.

Small wonder that the State Council, China’s Cabinet, last week issued guidance urging brick-and-mortar stores to restructure, innovate and integrate their businesses in order to survive in the current retail environment.

The Cabinet is referring to an environment where online retailing is on the rise and, in many cases, converging with offline sellers to offer consumers wider choices and shopping experiences that complement modern lifestyles.

In the first nine months of this year, China’s online retail sales surged 26 percent from a year earlier to nearly 3.5 trillion yuan (US$509 billion), outpacing the 10.4 percent growth in total retail sales.

Marks & Spencer, which has been in business for 132 years, said it will be focusing in the future on cooperation with Chinese online retailers such as Alibaba’s Tmall and

“The group continues to review the best way to retain its presence in China,” the British retailer said.

The flagship Marks & Spencer store on Nanjing Road W, which opened eight years ago, has always struck me as a dull, rather unattractive place to browse and shop. Its close neighbors, Swedish retailer H&M and Japan’s Uniqlo, are faring somewhat better in sales, with trendier merchandise and eye-catching storefront decor that appeal to the younger generation.

Marks & Spencer’s apparel range, by contrast, always seems to lag the latest fashion trends, and, worse, much of its clothing is in larger European sizes that don’t fit smaller Asian frames.

OC&C Strategy Consultants said in a research note that Marks & Spencer has failed to tailor its apparel to Chinese body shapes and style preferences, and has neglected chances to capture good locations in glitzy malls.

Other market watchers said the retailer’s strategy of combining apparel and food businesses hasn’t struck the right chord in the Chinese market.

Pacific Department Store on Huaihai Road, according to analysts, has been mired in retailing formats of the past, failing to attract high-end brands and neglecting to offer the kind of entertainment and leisure activities provided to shoppers at major malls. In the nearby K11 Mall, for example, art shows and other special activities are routinely staged.

Pacific Department Store said its two remaining outlets in Shanghai — in the Xuhui and Jing’an districts — would remain open but seek to adapt to modern ways of interacting with shoppers.

That’s the thing. Shoppers today want to be entertained and stimulated as part of a whole shopping experience. And they want the gadgets of digital life to be part of that experience.

Small wonder that Alibaba Group’s November 11 Singles’ Day sales racked up US$17.8 billion in revenue, breaking its own record as the world’s biggest retail event.

Uniqlo said on its Tmall flagship store that all of the promotional items it offered for Singles’ Day were sold out by noon that day. The retailer ranked as the fifth biggest seller among all Tmall vendors in terms of sales.

Tech-savvy vendors are already seizing new opportunities. Several apparel vendors are using their physical outlets as pick-up points for merchandise ordered online. Others have been offering online coupons for shoppers who visit their brick-and-mortar stores.

UK-based electronic appliances seller Dyson said sales during Singles’ Day hit 50 million yuan in the first hour after the event started at midnight on November 11. Its 24-hour performance ranked second in the small domestic appliance category on Tmall.

Strong sales through online channels as well as a solid network of distributors have pushed Dyson to expand in the domestic market, where consumers seem to like the company’s range of technologically designed vacuum cleaners, hand dryers, bladeless fans and heaters.

Next year, Dyson said it hopes to unveil at least one demon store in China.

The consumer-spending juggernaut in China is credited to rising disposable incomes and to government policies nurturing consumption as an economic engine to offset tepid exports.

Of course, that raises the argument that e-commerce is simply shifting consumer purchases from offline to online, creating little added value.

Professor Chen Xian at the Antai College of Economics and Management at Shanghai Jiaotong University pointed out that e-retailing has been a boon to people living in smaller cities and rural areas, enabling them to buy products not previously available to them.

But he also noted that simply jumping on the bandwagon by offering online discounts is not a sustainable growth path for China’s retail industry.

But consumers, with their smartphones at the ready to order and pay for online goods, seem enraptured with the digital experience. They can easily peruse what’s new in the market, compare prices and share insights with other shoppers on social media. Goods are delivered to the doorstep, eliminating the need to brave the crowds and lug around packages.

In the end, it is consumers and the choices they make that drive the market, whether that be online or off.


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