Department stores flourish in China and retail sales double in value, Mintel reports

Department stores are flourishing in China despite increasing competition from other formats and channels, according to new research from Mintel.

Reflecting the increased wealth of Chinese consumers, and the increased disposable income this has brought with it, Mintel’s research reveals China’s department store retail market doubled in value in the last six years, from RMB 315 billion in 2007, to RMB 683 billion in 2012. Its supermarkets and hypermarkets sector grew by almost the same, from RMB 527 billion in 2007 to RMB 1.109 billion in 2012.

Indeed, around a third (30%) of urban Chinese shoppers now shop at a department store once a week or more, with a further quarter (24%) shopping in them two to three times a month.

Matthew Crabbe, director of Asia Pacific research at Mintel, said: “Department stores in China have not only survived within the context of the country’s recent rapid economic development, but many have flourished, including several department store chains. Yet the market space they fill has to compete with other retail formats, such as specialist chains, hypermarkets and supermarkets, and growing numbers of new destination shopping malls and retail parks. This is making the competitive landscape increasingly difficult for department stores, and much harder for them to sustain their levels of interest among China’s shoppers.

“However, the department stores sector is adapting to the changes in the Chinese retail market brought about by the rapid growth in the domestic consumer economy. This is a process that will need to continue as the domestic economy continues to grow, the retail market continues to diversify and the influence of online retailing continues to grow. Department stores cannot rest on reputation alone, and need to continually innovate in order to sustain consumer interest. In such an increasingly competitive market, it will be the companies that are quick to adapt and innovate that will survive, while many stores and chains that fail to keep up with the changes will almost certainly go under,” Crabbe said.

Driving this growth, clothing tops the list of items purchased at department stores with 92% of those who shop in them purchasing a clothing item. This is followed by accessories (77%), personal care products (71%), houseware products (60%) and footwear (72%). In addition, menswear (68%) and womenswear items (67%) are the next most purchased.

Looking to the future, online retail also offers strong growth potential, with some 97% of urban Chinese consumers now claiming to browse online department stores, but demand for items appears to vary. Over the past six months, half (50%) of consumers who shopped at online department stores purchased shoes, 48% womenswear and 45% menswear. A further 35% purchased cosmetics, skincare and fragrances and 35% sports clothing, footwear and equipment.

Highlighting the importance of online apparel to the e-commerce market, Mintel’s research also reveals that online apparel retailing as a proportion of total China apparel market value has increased market share from just 2% in 2008 to 21% in 2012 – growing marketing value from £18bn in 2008 to £352bn over the same period.

“Online retailing is growing fast in China, and while online retailing offers opportunities for department stores to reach more consumers, they need to find a distinct niche within the online market. Focusing on the service reliability and brand quality of the core lines that make their physical stores successful can translate into added security and trustworthiness for online consumer,” said Crabbe.