China Retail

November 2016

Teresa Lam, Tony Yu Asia Distribution and Retail

The China Chain Store and Franchise Association (CCFA) hosted the China National Retail Congress

2016 in Suzhou on 2-5 November. The annual event gathered members of the CCFA, including

representatives from department stores, supermarket chains, convenience store chains and consumer

goods brands to discuss the outlook of China’s retail sector.

The theme of the event this year was “Formation of New Retail Landscape”, which focused on how

traditional retailers can transform and provide better products and services to meet the changing

needs of consumers. The Asia Distribution and Retail team of Fung Business Intelligence attended the

event and the following highlights summarized the views of selected speakers.

1

Key Insights from the China National Retail Congress 2016

- Leading retailers discussed retail transformation in “New Retail Landscape”

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FORMATION OF NEW RETAIL LANDSCAPE China National Retail Congress 2016 2-5 November 2016 Suzhou | China

• Physical retailers are urged to transform their businesses to meet the changing needs of

customers; this was repeatedly referred to as the “Essence of Retail”.

• New business models and retail technologies are crucial tools for retailers to reinvent their

businesses. Data analytics, omni-channel strategy and experiential shopping were some of the

concepts frequently mentioned.

• CCFA issued a summit consensus to outline the agreed visions of the participating retail leaders

and also to call for government’s actions in ensuring market fairness and sufficient public

spending on building market infrastructure.

2

Retail transformation in the “New Retail Landscape”

The conference kicked off with a keynote speech from Guo Geping, President of CCFA.

She stated that the rapid expansion of brands and retailers during the past booming

years of physical retail has resulted in market saturation in many key cities across the

country. Return of investment for many retail stores has dropped significantly and

some stores even recorded huge loss. She reinforced the need for physical retailers to

reinvent their businesses by understanding what consumers want in terms of products

and services.

Guo Geping, President,

China Chain Store and Franchise Association

Physical retailers need to understand the

needs of customers. “ ”

3

Supply-side reform is a priority for the Chinese government to aid China’s economic

restructuring. Yin Hong, Deputy Director of the Department of Circulation & Industry

Development, Ministry of Commerce (MOFCOM) said that physical retailers should

increase their competitiveness by participating in industry-wide supply-side reform,

such as adopting product differentiation strategy, improving shopping experience,

increasing the level of convenience to consumers using omni-channel strategy and

other new retail models, etc. She mentioned that the MOFCOM will adopt policies that

could facilitate retail businesses and will lower the burden of companies by eliminating

unnecessary fees. It will also promote fair competition by getting rid of industry

monopoly and local protectionism.

Yin Hong, Deputy Director, MOFCOM,

Department of Circulation & Industry Development

Transformation of Physical Retail Industry in-lines with

national policy of supply-side reform. “ ”

4

New strategies, new business models

Yuan Yafei, Chairman of Sanpower Group claimed that “New Retail landscape” is

about omni-channel strategy where online and offline channels coexist. As Chinese

consumers now demand better products and services, brands and retailers should

seek to better understand market needs and increase the value of their products, Yuan

said. Successful retail strategies should be able to create fun shopping experience for

customers, who value experience as much as the product itself. It is vital for brands

and retailers to provide unique shopping experience to customers through direct

social interaction.

Omni-channel has been a hot topic over recent years as the Internet and mobile devices

have become inseparable parts of people’s daily life. Increasing numbers of physical stores

have deployed omni-channel strategies with the hope of providing seamless online and

offline shopping experiences for their customers. However, many speakers at the

conference urged physical retailers to take a step back to rethink their omni-channel

strategy as online traffic have become costlier to lure and retain. Speakers discussed the

essence of retail and explored how physical retailers could stand out from the competition

by focusing on meeting consumers’ needs, both online and offline.

Yuan Yafei, Chairman, Sanpower Group

China Retail is in an age of integration. Consumption

upgrade presents retailers a golden opportunity for

transformation.

“ ”

5

The use of technologies to enhance customer shopping experience was a theme that

recurred in the conference. David Wei, Chairman and Founding Partner of Vision

Knight Capital stated that technologies and data analytics allow retailers to stay

connected with consumers. However, to make the connection effective and

translatable into sales, retailers must analyze customer data over time and across

channels, and turn the data into actionable insights. David further commented that the

Internet has lowered operating costs and opened up new markets for traditional

retailers. For example, it is now easier for brands and retailers to tap niche markets

such as remote rural areas.

David Wei, Chairman and Founding Partner,

Vision Knight Capital

Effective use of technology are crucial for physical

stores to differentiate themselves in the age of New

Retail.

“ ”

6

Experiential shopping is a frequently mentioned strategy for retail transformation.

Zhang Rongming, founding Chairman and CEO of Aimer, a domestic lingerie company

founded in 1993 shared his views on experiential shopping. Apart from offering core

products, it is also important for brands to provide a range of lifestyle-related services

that can enhance customers’ shopping experience, tell the brands’ stories and increase

customers’ loyalty. Aimer has built a lifestyle experiential shop in Beijing with the

brand “Aimer+”. In this lifestyle experiential shop, not only lingerie products are sold,

but also catering services, entertainment shows, consulting services, activities for

members, and other interactive shopping experience are offered.

Zhang Rongming,

Aimer's founding Chairman and CEO

Brands should provide a range of lifestyle-related

services that can enhance customers’ shopping

experience, tell the brands’ stories and thus increase

customers’ loyalty.

“

”

7

In a breakout discussion session on the industry outlook of fashion brands in China,

David Lung, Deloitte China’s Industry Leader (Consumer Products and Retails)

presented report findings from their recent study on Internet Fashion companies. The

report looked at local Internet fashion brands Liebo (裂帛), Inman (茵曼) and Handu

(韓都衣舍). These brands all started off as Internet Fashion pure plays that offered

fast fashion to consumers. Sales of Handu and Humei, Inman’s parent company, both

went over 1 billion yuan in 2015. Despite the continuous growth in sales volume, the

report noted that profitability of Internet fashion companies is low. Most do not have

stable cash-flow and are highly dependent on external investment. In the highly

competitive online fashion market, many Internet Fashion companies are still

experimenting with different business models. Some mentioned in their listing

documents that they plan to implement omni-channel strategy by setting up physical

stores, while others try to expand into other business segments by building platform

and becoming brands incubator.

David Lung, Industry Leader (Consumer Products and Retail),

Deloitte China

Business model of Internet fashion companies

still in an experimental stage. “ ”

8

Photo source: Fung Business Intelligence, China Chain Store and Franchise Association

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CONTACTS

Asia Distribution and Retail

Teresa Lam

Vice President

teresalam@fung1937.com

(852) 2300 2466

Tony Yu Research Analyst tonyyu@fung1937.com (852) 2300 2486 Fung Business Intelligence 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) 2300 2470 Fax: (852) 2635 1598 Email: fbicgroup@fung1937.com http://www.fbicgroup.com/