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REAL ESTATE: Why department stores are facing challenging times in Tianjin
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Why department stores are facing challenging times in Tianjin

By Lesley Chai, Analyst, JLL Tianjin

After the 2015 Spring Festival, news that some major department stores would close spread throughout Tianjin. Most people were shocked, because these projects were so well known, and the news was unexpected. However, once you think of how long it has been since you last shopped in one of the department stores, you realise it actually makes sense and that the closures were bound to occur eventually. Here are five main reasons four department stores (Far Eastern, Hunter, LaVita and Parkson) recently closed their doors.

BT 201506 25 Real Estate 001

The Closed LaVita

Customer habits have changed significantly
Shoppers have become more price-sensitive as e-commerce has proliferated. Online stores are well received and are characterised by lower prices, convenience and time saving. A larger number of people travelling abroad are another driver of the change in customer habits. When purchasing overseas, people not only realise the price gap between China and other countries, but also become accustomed to the better in-store shopping experiences, including better customer service and fancier decoration. As a result, most local department stores are not as attractive to shoppers after they return home.

BT 201506 28 Real Estate IMG 0135More competition in the market
During the last several years, the fast growing economy drove both international and domestic developers to invest in new retail projects in Tianjin. Various new retail projects opened which led the market to experience intense competition. Shopping malls started to become a better choice for young shoppers because of a more diverse shopping experience.

Take Far Eastern Department Store, one of the four projects that closed in the first half of 2015 as an example. Far Eastern Department Store opened in 2006 in the OldTown sub-market. At that time, it attracted people living around the area and shared high foot traffic with another traditional department store nearby.

However, things have changed since 2011, when a new Korean department store, Lotte, opened right across the street. The new project has a higher positioning with many unique international clothing brands. In the same year, Joy City, arguably one of the most popular shopping malls in Tianjin, opened. Its fancy decoration, more fashionable brands as well as entertainment and F&B outlets, and a top floor with small stalls creating a street market atmosphere have attracted young people from all over Tianjin. After these two new projects were completed, people had more choices to shop. Far Eastern Department Store was unable to compete and adapt in the new market environment and its dominant role in the Old Town sub-market evaporated.

BT 201506 27 Real Estate HLAnti-corruption campaign
The highly effective anti-corruption policies that the Chinese government started has largely reduced the sales of department stores. Before the anti-corruption campaign, one of the main drivers of sales was the giving of gift cards and presents to people with influence, especially before holidays. However, this practice has largely ceased, with department stores being impacted the most as retail sales in department stores have fallen sharply.

Hard to access
For retail projects, no matter the format, accessibility is a key attraction for shoppers. Convenient transportation and enough parking are the main factors that determine accessibility. As public transportation, especially the metro system, develops quickly, shoppers are becoming accustomed to traveling by subways to avoid congestion. Almost all the developers of new shopping malls are building their projects near or right on top of subway stations. In addition, many new shopping malls have large underground carparks. These are features that existing department stores cannot easily add. As a result, customers are now going to retail projects, which have better accessibility.

Parkson Department Store is a good example of shoppers bypassing less accessible retail projects. Parkson Department Store closed at the end of March. It was located in the traditional retail sub-market of Heping Road. However, it was located at the end of the Heping Road pedestrian street, where foot traffic is lower than at the middle of the street. The main competitor to the Parkson Department Store in the sub-market is Quanyechang, a traditional department store also featuring mid-range brands. Quanyechang is located at the junction of Binjiang Avenue and Heping Road, where there is the most foot traffic because of its location closer to the subway station.. Both of these department stores also faced competition from the much larger and more modern Riverside 66, developed by Hong Kong's Hang Lung group which opened in the autumn of 2014.

Lotte Department Store and Joy City mentioned above are both located on top of Line 2 subway stations. People living along the Line 2 subway line preferred to go to those two projects to shop rather than Far Eastern Department Store because of the convenience.

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Lotte Department store on top of subway station

Lack of clear positioning and attractive brand mixes
Most department stores in Tianjin that feature mid-range clothing have similar positioning and brand mixes. Customers now tend to spend more money on food and entertainment than apparel. Moreover, experiential retailers, such as cinema, KTV, ice rings and kid's gardens are increasingly an important part of the shopping experience. Unfortunately, the majority of the department stores in Tianjin have few F&B and experiential retail brands.

Hanter Department Store, for example, featured low-to-mid range apparel brands in Xiaobailou sub-market. Although it introduced some F&B brands, including Starbucks and Holiland, it still could not attract people to shop beyond its ground floor since the brands were not distinctive. In addition, the Xiaobailou sub-market is next to Binjiang Avenue, which is the most popular and mature shopping destination for low-to-mid-range brands.

Department Stores in the future
Intense competition, more discerning and price-sensitive customers as well as a shift in corruption policies have made the overall brick-and-mortar retail market, especially department stores, face a hard time adjusting to the changing market. Moreover, poor accessibility and out-dated brand mixes have accelerated the closure of department stores. With competition intensifying and macroeconomic factors becoming increasingly unfavourable for retail, we forecast more department stores will close in the future.

However, format alone will not be behind the closures. If operators start to make the necessary changes, we believe department stores with clear positioning, better service and designs, unique brand mixes and lower priced apparel will survive and even have better performance than some shopping malls. Ultimately, it will be the customers that benefit the most from this era of increased competition.


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