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The four key factors now reshaping Guangzhou's retail sector

The rise of discount outlets, the blurring of online and offline channels, the growth of experiential marketing and the emergence of department store own-label products are transforming retailers in Guangdong's capital and beyond.

Photo: Dedicated in-store discount promotional zones.
Dedicated in-store discount promotional zones.

Faced with economic challenges, new consumer preferences and emerging technological possibilities, the retail sector across the mainland is undergoing a massive transformation. Using the local scene as a microcosm, HKTDC's Guangzhou office has identified four major changes that are rewriting the retail rulebook.

While these four changes – the rise of discount outlets, the blurring of online and offline channels, the rise of experiential marketing and the emergence of department store own-label product – have been specifically charted in Guangzhou, it is widely believed they may have a resonance across the mainland.

1. From traditional department store to discount outlet

According to one estimate, some 300-500 million consumers in China have a purchaser preference for mid- to up-market clothing. Unfortunately, only around 70 million of them can afford to make this desire a reality. This has seen a huge market emerge for discounted branded clothing.

The Guangzhou Mopark Department Store is a prime example of this phenomenon. Last year, its Metro Mall store was converted into a dedicated discount outlet, making it the largest such store in central Guangzhou. According to Luo Jianji, the outlet's Deputy General Manager, this repurposing has proved hugely popular with a number of suppliers.

This has seen a number of new brands – including Nine West and Ochirly – now offered for sale at the outlet, while Belle, the leading women's footwear brand, has now set up a dedicated sales counter within the store. According to media reports, on its first day of trading, Mopark outlets saw a 300%-400% jump in turnover, with its footfall almost doubling.

As with Mopark, the Guangzhou Friendship Times Square Store has also been reinvented as a discount outlet, with TeeMall Guangzhou now planning a similar move for its Baiyun New Town operation. According to one manager at TeeMall, both of its planned 2014 openings will be discount outlets.

There are a number of reasons why so many established Guangzhou department stores have re-opened as discount outlets. Most obviously, the consumer market is in a state of sustained downturn and, as a result, consumers prefer to shop in dedicated discount stores, rather than waiting for the next round of sales in traditional department stores.

Photos: On- and off-line synergy in action.
On- and off-line synergy in action.

Additionally, local statistics indicate that – other than those who shop in the more upmarket Grandbuy and Xindaxin outlets – the majority of would-be buyers who frequent the city's Beijing Road district are only willing to spend up to Rmb100-200 on a single clothing item. Discount outlets have thus capitalised on meeting the expectations of these budget-conscious consumers.

A second factor has been the need by suppliers to turn inventory into cash. With suppliers seeking to continuously reduce their inventories, they are in urgent need of high-traffic discount outlet channels. As a third incentive for retailers, this change in use can also result in lower rental and operating costs, while also minimising the impact of discounting on full-price brand offers.

2. Embracing online and offline channels

With the increasing popularity of online shopping, department stores in Guangzhou have looked to establish their own online shopping channels. This has been coupled with increasingly aggressive online promotional strategies. It is now seen as very much the norm to have online and offline operations working in tandem.

GBHui.com, a Grandbuy online store, for example, has merged its online and offline loyalty programmes, allowing its VIP customers to use their bonus points in both physical and virtual stores. The move has allowed the company to more closely align its retail efforts, while developing online shopping as a viable business proposition.

By the same token, at the end of last year, the Mopark Department Store launched imopark.com. This portal offers all of the 1,000-plus brands featured across the company's eight self-operated stores, allowing customers full access to all of its merchandise range.

These developments are very much in line with wider national and international moves that have seen high street retailers keen to establish their brands online. At the same time, many retailers are also co-operating with the more popular and established online sales points in order to mitigate any sales shortfall in their conventional retail outlets.

3. Experiential marketing

Even given the growing level of collaboration between online and offline sales channels, many conventional retailers have still be keen to capitalise on those areas where they have an advantage over their digital competition. Experiential marketing – the process of directly engaging the consumer with the brand in a real world setting – is one such key area.

Explaining its appeal, Huang Yongzhi, Chief Executive of Grandbuy, said: "To benefit from such marketing, stores must turn promotional events into parties and use innovative experiences to drive higher customer traffic and stimulate the market. The name of the game is to give customers an array of experiences through their different senses."

Huang cited his company's Grandbuy Night and its Grandbuy Fashion Shopping Festival as prime examples of how this should work. As well as featuring traditional live model catwalk events, the company also created a massive "fairy tale kingdom". This was staged alongside as a series of fashion shows, all sponsored by leading brands, including Goldlion, Koradior, Bestseller and Triumph. The event also offered a Meet the Stars session, allowing customers the opportunity to be photographed with celebrities from the SK-II skincare range of commercials.

4. Private-label products and the rise of the "buyer" system

The need for keen price competitiveness, as well as the opportunity to boost per-unit profits, has seen a number of Guangzhou department stores introduce own-label products. Examples here include "Teem Quality" towels at the TeeMall and the "Mopark" socks now available at the Mopark Department Store.

Photo: Dedicated discount outlets: a boon for consumers and retailers.
Dedicated discount outlets: a boon for consumers and retailers.

In addition, a number of department stores have adopted a "buyer" system. This sees individual stores analyse the particular consumption habits of their own shoppers and then buy in specific products targetted at their own bespoke consumers. This advanced form of market segmentation has proved highly successful in tailoring local retail offerings.

Edison Lian, Guangzhou Office

Content provided by Picture: HKTDC Research
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