On March 19th, the 2024 (9th) China Cosmetics Trend Conference, organized by CHAILEEDO and supported by MeiDD, was held in Hangzhou. The conference, themed “Offline Reconstruction,” brought together the top ten domestic beauty companies, offline channel agents, CS channel stores, and beauty retail concept stores to discuss the new trends and opportunities brought about by the reconstruction of offline channels in the cosmetics industry. During the conference, Fan Jun, the President of the China Department Store Business Association, delivered a keynote speech titled “Changes and Current Situation of Department Store Channels.”
The following is the transcript of the speech:
Distinguished guests and industry experts in the cosmetics industry, good morning, everyone! Today, I will talk about the changes and current situation of department store channels. When it comes to department stores, many people would say that department stores are struggling nowadays. Before drawing a conclusion, let me briefly talk about the origins of department stores.
1.Department stores are the mother of business formats.
Department stores are a business format that embodies quality and fashionable living. In fact, “department stores are the mother of business formats,” as they laid the foundation for the development of supermarkets, shopping centers, outlet stores, and more. The origin of department stores dates back to 1852 when the first department store was established in France. These stores were established in relatively fashionable cities. In China, the first department store, Xianshi Department Store, was founded in Shanghai by Australian Chinese in 1917. Since then, many department stores such as Yong’an, Xinxin, and Ha Qiulin have emerged, all of which were established early on.
2.Evolution of the department store format in China.
During the planned economy era from 1952 to 1992, every major city had a landmark department store building. At that time, shopping had to be done at department stores, which symbolized status and taste. Department stores thrived during this period. After the implementation of market-oriented reforms in the post-reform and opening-up era, department stores also entered the market.
In 1996, the first shopping center, Tianhe City in Guangzhou, was established. Subsequently, shopping centers, outlets, specialty stores, and supermarkets emerged one after another. The business formats became increasingly diverse, leading to a diversion of market share from traditional department stores. The crisis for department stores gradually became evident. Especially with the rise of e-commerce, department stores faced significant challenges. They started exploring digitalization, but it was only after the COVID-19 pandemic that department stores truly embraced digital transformation.
During the pandemic, department stores were unable to reach consumers physically, so they leveraged technological means to revitalize their existing customer base and product categories. Nowadays, almost every department store has its own app or mini-program, providing consumers with more convenient shopping channels by offering online services that mirror their offline offerings.
The diversification of channels has accelerated, and department stores face the need for repositioning. Currently, department stores face two main difficulties: homogeneity among different department stores and intense competition. According to a report from Winshang.com in 2024, there were over 500 shopping centers opened last year, and there are projected to be 514 new openings in 2024. This means that department stores are facing competition from shopping centers, malls, and e-commerce platforms. They have entered a phase of maintaining existing market share rather than expanding it.
Moreover, due to their long history, department stores have relatively poor experiential offerings. Even with adjustments and renovations, it is challenging to introduce many experiential projects. They can only focus on being small yet exquisite. However, department stores also have their advantages. Many department stores own their properties, which reduces financial pressure. Additionally, department stores operate on a consignment model, resulting in higher sales per square meter.
In the future, the positioning of department stores is crucial. They must establish their own characteristics, concepts, ideas, and have a high degree of foresight. Furthermore, they need to prioritize customer-oriented service and retail experiences.
Let me share an experience. I once visited a department store in Japan that primarily sold lighters. It was also called a department store and sold other daily items like clothing. Later, I discovered that there were many similar department stores that focused on and highlighted specific product categories, adopting a differentiated approach to their operations. Moreover, their positioning was based on the surrounding stores and the local population.
Therefore, department stores must break away from the “one-size-fits-all” approach. There is a new term called “non-standard commerce,” indicating that department stores can no longer solely focus on selling products. They must become personalized and unique. For example, since the Asian Games introduced esports as a competitive event, department stores could also consider introducing such new business formats in the future.
Why should cosmetics be sold through department store channels? In fact, cosmetics have always been a prominent category in department stores. Beijing SKP, Hangguang Department Store, Shanghai New World Daimaru, Intime Department Store, Dongbai Commercial, Beiguo New World, Nanjing Golden Eagle, Hangzhou Tower, Wuhan Plaza, Shenzhen Huaqiangbei Maoye, Chengdu Wangfujing, Xi’an Kaiyuan… all excel in cosmetics sales. During the golden age when department stores dominated the retail landscape, cosmetics accounted for a significant portion of their total sales. While department stores are not the only distribution channel for cosmetics, they are an indispensable one.
I just read about CHAILEEDO’s introduction, and online cosmetics sales have already surpassed offline sales. With online traffic reaching its peak, I believe there is still a need for offline presence, and we should not underestimate the future development of department stores.
The question of whether now is the best time for cosmetics to enter department stores is a pseudo-proposition. If I say it is the “best time” but the brand does not achieve the desired results, it might give you false hope. However, I believe that as long as the brand is strong enough and can win the favor of consumers, anytime is the best time. If the brand itself is not strong enough and you have to enter the mall, then it will definitely be eliminated, and the best time will not be your best opportunity.
3.Current status of department store format.
In 2023, the department store industry grew at a rate of 8.8%, and the sales per square meter in department stores are relatively high. Currently, there are approximately 7,500 department stores nationwide, with a total sales scale of around 30 trillion yuan. Since the first shopping center opened in 1996, the number of shopping centers has reached nearly 6,000 in just over 20 years, indicating rapid development. I believe that the competition among shopping centers will be intense in the future.
Everyone must choose which type of store to enter based on the characteristics and attributes of their brand, and not blindly follow others. Don’t just focus on immediate gains; instead, lift your head and look at the direction and the road ahead.
Let’s talk about outlets. Currently, there are about 240 outlets in China, with a total sales volume of 230 billion yuan. Apart from the well-known and group-managed outlets that are doing well, there is a mix of good and bad outlets, so careful selection is necessary when entering the cosmetics market.
Supermarkets have the largest number of stores, with around 40,000 supermarkets and sales revenue of nearly 3 trillion yuan. Supermarkets have been greatly impacted by e-commerce, but there are some supermarkets that are doing well, such as Hema and Sam’s Club. They both operate on a membership basis, and Hema is rumored to have over 100,000 members per store. While I haven’t fully verified the figures, the annual membership fee for different levels of membership is around 200-300 yuan. Sam’s Club China is said to have 4 million members, and their regular membership costs 260 yuan per year. Their membership fees are enviable by others.
Currently, the “Pang Donglai” brand has gained popularity, but its business model cannot be replicated because Pang Donglai shares 50% of its profits with the team each year. Pang Donglai has already become a tourist attraction, and its customer service is indeed excellent. This is an example that department stores should learn from, and even brand owners should adopt this kind of spirit.
The most concerning question for everyone here is how to enter department stores. I believe it is really difficult to enter first-tier department stores due to their high requirements. In the past, some people used to say, “The first floor of a department store sells foreign brands, the second floor sells imitation foreign brands, and the third floor sells domestic brands.” However, this phenomenon is changing, especially with the younger generations, such as those born in the 1990s and 2000s, who no longer idolize foreign brands. With the rise of Chinese brands, consumer perceptions have completely changed, so we have every reason to be confident in physical retail.
I believe that department stores still have great potential and value. Many data have fully confirmed this point. While people are saying that the economy is difficult and consumer spending is downgrading, consumers’ consumption concepts are upgrading. Therefore, we must pay attention to this. Standing still is not an option, as we will be quickly eliminated. A better future is not handed to us; it is achieved through hard work and perseverance. I believe that as long as we work hard, the future will definitely be better and better.
Thank you!
