30 People Told Us What Ails Department Stores, and the Industry May Truly Have No Way Out | 2015 Getting Younger Series
The golden age when one department store clerk looked after three customers at once is long gone. What did department stores do wrong, or is everything they do wrong?
The golden age when one department store clerk looked after three customers at once is long gone. What did department stores do wrong, or is everything they do wrong?
Ms. Li has worked as a cleaner at Pacific Department Store in Shanghai's Xujiahui for nine years. She works 12 hours a day. Bent over her mop, she clears stray debris from the second-floor corridor, stopping now and then to let shoppers pass. On November 20 the second floor is busier than usual: it is the first day of Pacific's anniversary sale, with 15% off.
"I'm more tired now than before," she says. Ms. Li used to share the cleaning of this floor with two colleagues; now the whole load falls on her. At the other department stores we visited, the story was mostly the same: business is no longer brisk, and the slump has led directly to layoffs. And the empty aisles really do not need cleaning as often as they once did.
The department store slump is hardly news. In 2012, 2013 and 2014, 7, 15 and 23 department stores closed, respectively. The wave of closures has not ended: by June 30, 2015, 25 had shut, already more than in all of 2014. The stores still struggling on have 16.2 million square meters less floor space than a year earlier, the equivalent of 81 Xidan Joy Citys.
The trouble is not unique to China. Macy's, which joined Tmall's "Singles' Day" shopping festival for the first time this year, announced in September that it would close 40 stores. "What they buy now is stuff we don't sell anyway," said Macy's CEO Terry Lundgren.
Department stores are trying new things too, such as making payment look a little younger
Department stores were a pleasant place to shop for Americans in the 20th century and for Chinese in the early 21st, but those days are over. To save themselves, traditional department stores are embracing new technology. In November, Huijin Department Store on Shanghai's Tianshan Road began accepting Alipay and WeChat Pay. Finding a card, paying and signing used to take one to two minutes; scanning a QR code takes 30 seconds. Next month, customers will also be able to order and pay on their phones, with no more hunting for a cashier.
But can "innovative" payment really pull department stores out of their slump?
Zhang Xiao, about 26, is trying on a pair of women's ankle boots on Huijin's first floor. She goes to department stores less often than she did two years ago, and she did not know Huijin had a new way to pay. Asked whether easier payment would bring her back more often, her first reaction was: "Is there a discount? If there's no discount, changing the payment method doesn't mean much."
Price is what matters, and it is an old wound
Yes, price is what consumers care about most, and department stores have no price advantage.
At the Only store on Huijin's second floor, a loose teddy-fleece coat hangs to the right of the entrance, priced at 999 yuan. "The store is on sale today, so after the discount it's 599 yuan," the clerk told us. On Only's flagship store on Tmall, the same coat is 50% off with another 30 yuan off on top, for 499.5 yuan, and 4,061 have sold on Tmall this month.
In recent years department stores have left us with the impression that they are expensive and sell little-known brands. "The markup multiple on women's clothing in China (retail price divided by the cost of the garment) can be as high as 20, and even at 90% off it is still 2," said Wang Yao, director of the China National Commercial Information Center.
Department stores lease their space to brands and act as "sub-landlords," while the brands handle stocking and selling. But as land prices rise, so does the stores' rent burden, and they pass the added costs, along with labor, water and electricity, on to the brands. The brands in turn have no choice but to "raise the markup sharply and fool consumers with big promotions."
Knowing they cannot win on price, department stores are trying other things, such as running their own e-commerce with online shops and apps. Huijin will launch its own app in December, and the biggest change is that anyone can become a VIP member. In the past, you had to spend more than 500 yuan in a single day to get a standard VIP card, and more than 5,000 yuan for a gold card. Now you only need to download the Huijin app.
Huijin's Xujiahui and Tianshan Road stores have 140,000 members between them, but few are active: only about 70,000 to 80,000 have shopped there even once in the past year. Membership was meant to be exclusive, giving certain customers special treatment to win their loyalty. By lowering the bar, Huijin shows two things: members have lost interest, and it wants to use the app to record buying habits, learning each member's preferences the way websites track us with cookies.
This may well bring in more members, but whether it gets them to buy is another matter.
Department stores across the country began building online operations this year. In March, Wanda set up its e-commerce platform Ffan; Intime Online came a little earlier. The First Department Store, Wing On, Orient Shopping Center and Shanghai No. 1 Yaohan, all under Shanghai Bailian Group, have started what the industry calls "omni-channel" development: combining online and offline so you can buy a physical store's goods online without going there.
But does "omni-channel" work? "The effect is not very obvious yet," Wang Liuhe, secretary general of the Shanghai Department Store Association, told QDaily. He believes department stores are in transition, and that quantity will take time to turn into quality. Wang Liuhe, who has 28 years in the department store business, recalled: "We used to tell sales clerks: 'greet one, ask two, attend to three.' You receive the first customer, and while he looks at the goods you ask the second customer what he needs, to prepare. At the same time you look after the third customer and ask him to wait a moment."
The golden age when one clerk looked after three customers is long gone. And now? "Three clerks to one customer. It's all reversed," he said.
Besides adding e-commerce, Huijin's Xujiahui store this year fully renovated its restrooms, added a nursing room and brightened the elevator lighting. Other Shanghai department stores have added barrier-free access and put out benches for shoppers to rest on.
These changes may not look impressive, and you may not even have noticed them, but they are not cheap, especially as department store profits shrink year after year. Huijin renovated only its Xujiahui store. "After all, renovating one restroom costs 300,000 yuan, so normally we wouldn't do it," Zhang Jianfang, deputy general manager of Huijin Department Store, told us. "Spending money is easy, far too easy," he said, sounding a little helpless.
The better department stores are just a fitting room
Consumers have not been moved. Huijin's foot traffic has fallen 10% a year since 2013, and this year it fell 20%. Fewer people come, and most of those who do treat the store as a fitting room.
"It used to be that of 10 people who came to browse, 9 tried things on and 6 bought. Now, of 10, 8 try clothes on and only 5 buy," said a clerk who has worked at Eland for three years. In this month last year she sold 350,000 yuan worth; this year, only 310,000. When Eland sees sales falling at a store, it sends fewer and fewer goods, so what ends up on display are the styles that don't sell: a vicious circle. "Business isn't as easy as it used to be. Before, I had no time at all; now I'm very idle," she said.
Brands are not only sending department stores fewer goods; some have pulled out altogether. Ms. Zhou, an accessories sales representative for eight years, is the "middleman" between a brand and the department stores: she checks the brand's sales at each store and allocates goods as needed. "Last year we pulled out of Friendship Store and Yaohan. A promotion used to sell 20,000 or 30,000 yuan in a day; now it doesn't even reach 10,000," she said. Her brand has decided to try another route and has begun working with China Duty Free Group (CDFG), selling wholesale to duty-free shops.
Shoe sellers in department stores face the same situation. New Arrival, on Huijin's first floor, is an American brand. We walked in at about 5 p.m. on a Sunday. "I still haven't sold a single pair," the clerk said. She has been there three months, and the company has cut her sales target from 70,000 yuan to 50,000, because of the seven days in a week she can meet the daily target on three at most. Mostly she feels helpless: "Half the people only come to try on shoes. I ran back and forth helping one customer try on five or six pairs, and in the end she said, 'I'll have a friend bring them from the US, they're cheaper there.'"
The worse department stores may not even get to be a fitting room
When customers don't buy, department stores can only discount wildly. In the many stores we visited, every floor and every category displayed signs for deep discounts. "Discounting isn't a good sign; it's really a form of anxiety," Wang Liuhe said. Anniversary sales and regular discounts are normal, and 30% or 20% off is normal too, but now "consumers won't come unless it's less than half price."
Women's shoes in the department store marked down to 30% or 40% of the original price
Ms. Zhang, who sells wool sweaters on the second floor of Liubai Department Store, told us: "The store's best offer used to be 60 yuan off every 99 spent. Since the year before last it's been 70 off every 99, which never used to happen." Ms. Zhang has worked at Liubai for six years, and in recent years her sales have fallen 15% a year. "It's not just us. When I chat with other clerks I often hear someone say, 'Another blank day today.'"
Still, Liubai is relatively lucky. Its customers are middle-aged and older, and they are more willing to come and browse. Pacific Department Store, right next door, has less reason for optimism.
Ms. Zhang's sweater shop happens to sit beside the walkway linking Liubai and Pacific, and the first shop past the walkway is Teenie Weenie. At Pacific's anniversary sale last year, Teenie Weenie gave 12% off, plus 100 off every 188 spent. "Last year they had so many people the queue stretched all the way to us, and they even added a temporary cashier's counter. This year you can't see anyone," she said.
Restaurants and cinemas are said to bring in foot traffic
Watching its results slide, Pacific last year converted its seventh and eighth floors, which used to sell home appliances, into restaurants, and the basement of Huijin on Tianshan Road is now packed with more than 10 restaurants. We did not like the basement: the decor looked dated and the space felt oppressive. Perhaps because it was lunchtime, when we ordered a two-flavor pan-fried bun set at Xiao Yang's Pan-Fried Buns, seven or eight people lined up behind us in the few minutes it took to pay. A server at Xiao Yang's said, "On a good weekend we can sell 7,000 to 9,000 yuan a day." At an average of 20 yuan an order, that is roughly 400 customers a day.
The basement corridor
Cosmetics and shoes on the first floor are doing worse. "Even when business is good, we only get about 100 orders," said a first-floor cashier.
Cinemas are another way department stores draw people in. "Our cinema has three screens, each seating about 70, and when business is good they're basically full," a ticket checker at the Huijin cinema told us. The schedule showed 17 screenings a day; at 70 seats each, weekend traffic comes to roughly 940 people, a figure the ticket checker confirmed.
The cinema's screening schedule on a Sunday
Restaurants and cinemas look like the busiest places in the department store. But does that traffic help the store sell more? We stopped 25 people at random as they left the cinema, and all of them said they would go straight home after the film. The only different answer came from one family, who planned to eat at a basement restaurant before leaving.
We also watched the express elevator on the first floor for half an hour: almost every customer went straight up to the cinema on the sixth floor, and very few went to other floors.
So why do department stores still want restaurants and cinemas? "If a restaurant has 100 customers a day and 10 of them wander into the shops, that may produce some sales. Without the restaurant, there might not even be 10 customers," said Wang Liuhe, the association's secretary general.
Worse, even restaurants and cinemas, something like a lifeline, are not doing as well as they used to.
"In the past few months, three or four restaurants here have been removed. They close when business is bad, then new ones come in," said a cleaner working in the basement. He used to be especially busy around 6 or 7 p.m.; not anymore, because fewer people come. He pointed to the chairs stacked neatly outside the 70s Diner and told us: "All these chairs used to be put out for customers waiting for a table. Now they don't bring them out."
From the mall's point of view, restaurants are actually a losing proposition. When a 100-yuan garment sells, the brand may give the department store 30 yuan, or 50 in good cases, while a restaurant usually contributes only 8 to 10 yuan. Restaurants pay low rent, and since they generally take 7 to 8 years to recoup their costs, they are also long-term tenants.
For these reasons, Huijin has not rushed to add restaurants. "Low-margin things contribute zero to us, and we spend a lot on them," said deputy general manager Zhang Jianfang.
Most of the changes department stores have made so far have not touched the core problem: why do people no longer like shopping in department stores, and why does no one want to come even with discounts, restaurants and cinemas? Have people stopped going out? No. They have simply moved somewhere else: the shopping mall.
The biggest difference between a shopping mall and a department store is that in a department store you must walk to a cashier's counter to pay, while in a mall you pay right in the brand's own shop. More visibly, a department store makes you walk a full loop of each floor before you can reach the escalator, while in a mall such as Shanghai's iapm there are escalators everywhere, plenty of open space, and room to breathe.
In a department store you usually know that the second floor sells young women's clothing and the third floor menswear. A mall mixes things up and sells an experience. Next to a clothing store there might be a chocolate shop or a restaurant; food and leisure can take up as much as 50% of the space. Department stores are the opposite: 70% or even 80% is shopping, and only the rest is dining.
"Department stores solved buying things; shopping malls solved socializing," Suo Shan, a director at RET Consulting, told QDaily. We left the era of having nothing to wear long ago, and many people already own the classic items of every brand, so those of us who value choice and experience prefer the mall.
An Eland sales clerk told us: "Eland's foot traffic and sales in shopping malls are more than twice what we get here."
Department store floors organized by product category
And there is fast fashion, which, sadly, they turned away
Besides the experience, malls are popular because they have fast-fashion brands: H&M, Zara, Uniqlo. These brands sit beside luxury labels in the best spots in the mall. So why don't department stores bring them in?
It is not that fast fashion looks down on department stores; department stores simply cannot handle fast fashion.
Drawn by department stores' foot traffic and prime locations, Zara, H&M, Uniqlo and Forever 21 wanted to enter Huijin three or four years ago, but "their category clashes somewhat with our store," Huijin's deputy general manager said. Fast fashion is cheap, of average quality and quick to change, the exact opposite of what brands like Vero Moda and Only stand for in a department store.
Bringing in fast fashion would hurt the store's other brands.
Fast fashion also asks a lot of department stores: "They all want more than 1,500 square meters, and on the first floor." Not to mention that the rent they offer is very low.
Huijin has turned fast fashion down several times. A 60,000-square-meter shopping mall can give 20,000 to fast fashion, "but we have 40,000 in total, and giving up two or three thousand is more than we can bear," Zhang Jianfang said.
Give the space to Uniqlo, and a department store with 300 brands may have to drop 100 of them. That undermines its identity as a "gathering of a hundred brands" and weakens its bargaining power further.
Department stores dare not bring in fast fashion, and they have no brands of their own that young people like. "It feels like every department store has the same few brands, and nothing has changed in years," Li Xin, a university student in Shanghai, told us. She lives in Xujiahui and often waits for one of the stores to hold a sale before she buys.
And department stores have to discount, because their goods are not scarce and price is the only thing they can compete on.
To save effort and expand quickly, department stores handed the power to buy and price goods to the brands and happily became "sub-landlords." Without buying stock or managing inventory, they have no way of knowing which styles are popular. Department stores across the country rushed to sign up brands that looked hot, then collected a monthly commission from them.
The price of being a sub-landlord is shrinking profit. If a department store bought its own stock, a garment that cost 10 yuan and sold for 100 would earn it 90; after handing buying and pricing power to the brand, it may end up with only 30. As department stores have kept sliding and discounts have deepened, the commission they collect has kept falling too.
Stores that have recognized the problem are slowly moving toward "self-purchasing," that is, running their own operations and setting their own prices. Starting this month, when Huijin sees a product selling well, it negotiates with the brand, buys a stock of the bestseller, and sells it on its app. Setting its own price naturally means higher profit. Department stores also attend annual product fairs and buy directly from designers.
More and more department stores are moving toward running their own operations. Wanda Department Store has developed a very small range of self-purchased goods, but self-purchasing demands a lot of a department store. "Self-operation takes up too much space and doesn't fit industrial production," Suo Shan said. Buying its own stock means a department store carries enormous inventory and capital risk, and once inventory piles up, it loses money.
Self-purchasing also depends on one crucial role: the buyer. A buyer must be able to judge which goods will sell and accurately predict consumers' tastes. Buyers are exactly what China's department store industry lacks, and training one takes 10 years.
This business has to support more people, such as Ms. Zhang
Department stores have kept closing and seen sales fall over the past few years, but that does not mean no new ones will open. We saw more department stores opening in second- and third-tier cities, where they are relatively scarce. "The department store problem is local oversupply and uneven distribution," Wang Liuhe said. A Jiuguang department store has just opened in Shanghai's Zhabei District, and he believes more will appear after Jing'an and Zhabei merge.
In second- and third-tier cities, where people spend less, practical-minded department stores may still draw some traffic, but it is only a matter of time.
Those hit hardest by local oversupply are the sales clerks in the central business districts of first-tier cities. In the stores we visited, most were women of about 40 to 50. Ms. Zhang, at Shanghai's Liubai Department Store, earns a monthly base salary plus a 1% commission on sales. As sales keep falling, her commission shrinks year by year, and she takes home only a little over 2,000 yuan a month.
Asked why she stays, she said: "At least Liubai pays my social insurance and housing fund contributions. The good brands all want people under 35, and I also have to stay close to home. I have nowhere else to go."
Translated from the original QDaily article. Original publication date retained.