The slow death of offline retailer, China vs US?

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There are usually two camps of views regarding the future of offline retailer. The debate till this day has been one of the most sought after topics or headlines. Every time it seems to trigger new fascination without much boredom.

For someone who truly believes in the slow death of offline retailer for physical goods, it is no shortage of omens to gather from the two biggest economies today. In the US, we have witnessed the downsizing or closing trend of traditional retailer chains, including some of the big names: Radio Shack, Sears, Wet Seal, Office Depot, Barnes&Noble. Major retailers like Best Buy, Staples, JC Penny or Sears, all significantly lag behind the S&P 500 in returns over the last 5 years due to their underperformance. In China, a total of 201 stores were closed by major national retail chains, department stores and supermarkets in 2014, representing a YOY growth of 474.29% from the 35 closed stores in 2013. A document internally circulated in Wanda Group(China’s largest commercial property company and cinema chain operator) in 2015 revealed its plan to close more than 40 stores nationwide that incurred heavy losses. All these are in vivid contrast with astronomical growth of e-commerce companies. Ebay and Amazon both saw stock prices increase over 150% in the last 5 years, outperforming both the S&P 500 and the NASDAQ. Alibaba said its online retail GMV already reached USD463 billion, thus may surpass Wal-Mart in 2016 to become the world’s largest retailer.

Nevertheless for those who are convinced that offline retailers still stand a chance would argue with counter examples that some players have actually weathered the storm: both Walmart and Target have seen stock price growth of over 25%, though still underperforming the S&P 500 in the past 5 years. TJX, America’s largest international apparel and home fashions off-price department store chain, has thrived with stock up over 240% in the last 5 years; it intends to boost store count to 5600 in the coming years. Costco, the warehouse retailer, is pushing ahead with plans to open more stores in the U.S. and overseas, attribute to its brilliant management in supply chain efficiency. Nordstrom, the department store headquartered in Seattle, became one of the best practices in retail transformation, by forming strong e-commerce partnerships and making aggressive e-commerce acquisitions. Given Amazon even plans to expand its physical store presence in future after the success of its first offline bookstore in Seattle in late 2015, who said brick&mortar retailer is doomed?

It is now estimated that e-commerce still accounts a small portion of total retailing market size, roughly 10% in the US, 12% in China, but ironically most traditional retailers have already felt the stinging slash of e-commerce threat. Nowhere has the pain been more poignantly experienced and massively amplified in China. Not that Chinese retailers have not taken proactive actions. In fact, many well-known local retailers have intensified investment in e-commerce operations, however, it is just getting harder and harder to stay on top of those pure e-commerce rivals.

The US only has 10 cities with a population over 1 million, coupled with a fully-developed system of brick and mortar retailer chains. China has 60 cities with a population of more than 6 million and 13 cities with a size of over 10 million. China traditional retailers have never been able to lay out a well-spanned and mature network of offline chain stores under such gigantic scale. In addition, many retailers have to deal with surging rental price of commercial real estate in China. As a result, China’s e-commerce success has been built upon such open opportunity, further catalyzed by the fast advancement in logistic and delivery infrastructures. Any complacent thinking that the instant gratification of walking out with the product after touch and feel is a core part of consumer experience which would guarantee the survival of offline retailers in China, please do think twice. Soon we are facing the new generation of millennials who are often digital savvy, spending time almost 24/7 in front of computer/mobile, thus offline shopping very likely has never been an integral part of their life orbit. On top of that, China e-commerce giant’s commitment in 24 hours delivery and free shipping on return does not seem to hurt instant gratification that deeply.

So is there any silver lining in the slow death of offline retailer? Or it will be just a chill in the wind in the US, but a desperate knock on the door in China? Which opinion camp are you in?

Cecilia Wu

A witty, nutty and frosty writer who hopes to jot down moments of inspiration from her daily life

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