China’s Bricks And Mortar Fall Victim To eCommerce

Amid the slowdown in the Chinese economy, which not long ago was moving ahead at a blistering pace, the retail sector has been feeling pressure.

The Wall Street Journal reported Monday (Aug. 3) that among the latest companies to feel the pinch, and adjust, is the Chinese property and entertainment firm Dalian Wanda Group. WSJ reported that the company is closing some of its Wanda department stores, which are casualties of poorer sales. And, in addition, the firm is getting out of the karaoke business entirely.

In remarks emailed to WSJ, Qu Dejun, senior vice president of Dalian Wanda Commercial Properties Co., said major changes in Chinese consumers’ behavior were behind the reorganizations.

“Some Wanda department stores are making losses, and making these adjustments is normal business behavior,” the executive said in his emailed remarks. Exactly which stores and how many will close has not yet been decided, according to WSJ.

In reference to the karaoke business, the company’s margins in this segment have been declining, and that is in part tied to the Chinese “policy environment,” noted the firm. As the Chinese Communist Party has been ferreting out corruption in various industries, high-end restaurants, retailers and hotel chains have been hit as officials cut back on previously extravagant spending. The karaoke locations will be sold to other operators in the same industry, Wanda said. New occupants will come into the department stores being closed, and Wanda’s chief executive also said the firm will keep its emphasis on jewelry and clothing.

All told, the company operates a portfolio of more than 100 Wanda Plazas throughout the country, which are akin to shopping malls, with an emphasis on affordable fast-fashion names.

WSJ reported that an examination of Chinese retailers — excluding Wanda — revealed that same-store sales (locations open at least a year) showed declines for the first time in several years. At least some of the revenues were hit by foreign competition and prepaid gift card sales slippage. Growing online sales are also to blame, which has led to oversupply among brick-and-mortar locations.

As WSJ noted, Wanda said in July that it is targeting 65 percent of its net profit from services within three years and has been expanding into financial offerings.

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