A number of Asian department store chains and traditional retailers across greater china and South East Asia have posted profit warnings in the past few weeks, reflecting weaker retail sales amid an economic slowdown and a drop in consumption.
The industry players and brands tend to blame the lower numbers and lower buying power of tourist shoppers from Mainland China. According to our researches, the drop in Mainland tourists cannot explain every aspect of what is happening and the boom and disruption of global e-commerce players is becoming a tangible part of the equation.
The impact of cross-category e-commerce businesses today on countries like Hong Kong, China and Singapore is fragmented and hard to measure. Online sales in the fashion sector seems to be only at around 10% versus offline sales, but in Europe and the US, some pure-players are surfing on the price differences with Asia to erode traditional retailers’ market shares at a very fast pace. Price differences in Asia compared to the US and Europe are fuelled by skyrocketing rents in good retail locations which force traditional retailers in Asia to pump up their prices in order to keep their business profitable. Rents adjustments are slower than the market reality and retailers are suffering while waiting for their leases to get to renewal and negotiation.
The rise of e-commerce in China has led to dwindling sales for department stores and traditional retail brands, with some being forced to close.
“Department stores originally were designed as a one-stop shopping destination… but really, over the past five years, they’ve lost out to shopping centers and the past three years, lost out to e-commerce,” said James Hawkey, head of retail at Jones Lang LaSalle in China.
At least 449 mainland department stores have pulled down the shutters since 2012, according to Linkshop, a mainland website that tracks the retail industry.
What is this trend that seems to be taking over the traditional retail industry?
Today, digital retailers such as Amazon, Tmall and TaoBao are competing with traditional ones. This competition has aimed to a decline in final transactions through brick and mortar shops.
Cross-border e-commerce sales in China, for instance, were estimated to 259 billion RMB ($40 billion) in 2015, which represented more than 6 percent of China’s total e-commerce sales. This was said to keep growing upward to 50 percent annually.
China’s major e-commerce site, Alibaba’s Tmall, has moved into the market with a cross-border site (Tmall Global). Tmall Global has attracted major foreign retailers, such as US-based Costco and South Korea’s Lotte Mart, while US e-commerce leader Amazon is increasingly active in China. On top of the opening of its offshore shopping sites to Chinese consumers, Amazon also offers to users of its Chinese site (Amazon.cn) a list of selected foreign products with Chinese-language descriptions and specifications.
In Singapore, the sharp increase came from shoppers above 35 years old, as those in this group using portable devices to access the internet rose by 50% over two years. Over 70 per cent of those below 35 years old already shop online.
In the US, the same changes are happening and Industry executives have blamed the slowdown on their side on a warmer-than-expected winter and a pullback in consumer spending on apparel and accessories.
“We are seeing continued weakness in consumer spending levels for apparel and related categories,” Terry J. Lundgren, the chairman and CEO of Macy’s, said in a statement this week to business insider.
Amazon is taking an increasing share of the US apparel market, according to Morgan Stanley.
“Internet retailers (led by Amazon) have added $27.8 billion to their apparel revenue since 2005, while department stores have lost $29.6 billion,” analysts at the bank wrote in a note on Thursday. “This share loss appears at risk of accelerating given 1) Amazon’s bigger push into fashion, and 2) consumer willingness/acceptance to shop fashion through Amazon.”
The following chart illustrates department stores’ loss of market share. Note that total sales are ticking higher.
One of Amazon’s warehouses
Shopping malls and department stores across Asia are now trying to add more restaurants, entertainment venues and fast-fashion brands to compete with e-commerce operators and attract young shoppers ; but if our predictions are correct, more of them may close in the next coming years in Asia.
Combined info sourced from Business insider, South China Morning Post and Morgan Stanley. Study by Retail in Asia