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      Standing out from the flock among shoppers

      2015-03-03 11:33 China Daily Web Editor: Si Huan
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      Year of the Ram ushers in changes and challenges for online, offline retailers

      With China predicted to become the world's largest retail market within the next five years and Alibaba Group Holding Ltd frequently in the news, global interest in the nation's retail industry has never been greater. But amid a slowdown in the Chinese economy, the sector is entering a new phase with different retailers facing important challenges.

      In the past year, Alibaba made headlines with its high-profile initial public offering in the United States, record-breaking sales for the Nov 11 Singles' Day and exponential growth in mobile spending.

      E-commerce has gained ground in many retail categories, particularly apparel and electronics, contributing 33 percent of total retail growth last year. In first-tier cities, the numbers are even more impressive, with 73 percent of total retail growth in Beijing.

      In offline retail, malls were the other strong performer as a booming construction landscape continued to drive retail spending. More than 1,700 malls are open nationwide, with another 1,000 under construction.

      Despite the tremendous growth of e-commerce, malls continue to offer the best offline shopping experience, particularly for younger Chinese consumers attracted by the availability of new brands and the appealing mix of shopping and entertainment.

      While e-commerce and malls have progressed quickly, more traditional brick-and-mortar retailers have lagged behind. Overall, the average sales growth of China's 100 major offline retailers slowed to just 1 percent last year, with many of the large, multinational retailers such as Wal-Mart Stores Inc and Carrefour SA experiencing more severe decreases in year-on-year sales in China.

      Even the poster child of the Chinese hypermarket, RT-Mart International Ltd, failed to grow in 2014. Other department store chains such as Parkson, a division of the Malaysia-based Lion Group, also performed poorly, especially in first-tier cities where the competition to provide customers with a seamless shopping experience across online and offline platforms ("omni-channel" retail) is the toughest of all.

      Online retail leaders are enjoying the fruits of a successful past 12 months, but the situation is different for physical, big-box retailers. With falling sales and the declining effectiveness of promotions, traditional retailers face tough strategic decisions on their business operations.

      These brands will need to assess how they manage underperforming stores, streamline back-office functions and reduce labor costs to boost their long-term prospects.

      Many established retailers have begun to think more innovatively. Some have started to develop their online-to-offline offerings by providing online information, services and discounts to attract shoppers to an enhanced real world shopping experience. But the success of this approach has been mixed.

      What can we expect from the Year of the Ram in retail? E-commerce frontrunners will continue to dominate but their growth is likely to slow due to the limitations of mobile commerce platforms, which make it harder to push incremental products.

      There are also such issues as consumers' diminishing appetite for spending and the nation's clampdown on counterfeiting.

      For malls, the risk of empty white elephant construction is likely to resurface. Expect some developers and retailers to learn the hard way that gaining consumer preference is about more than a glitzy building.

      Other traditional brick-and-mortar retailers will be working harder to innovate and evolve their offering to lure consumers back. As well as trying to reduce costs, department stores will need to provide value-added services such as expert advice and after-sales service and try to maximize their best asset, which is an enormous consumer base as a source of high-quality information.

      The Chinese retail landscape is changing rapidly and e-commerce is growing at an incredible pace, taking market share from traditional channels. The key for both online and offline retailers is to adapt their proposition to attract increasingly confident, savvy and mobile-enabled consumers as China's economic growth slows and the competition for shoppers' money intensifies.

      The author Jacques Penhirin is from OC&C Strategy Consultants greater China. The views do not necessarily reflect those of China Daily.

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