The newly opened Yanjiyou bookstore in Xi’an is fighting the trend to buy online. Stocking over 130,000 titles in a double-storied building of 4,500-square-metres, the bookstore features an art gallery, a café and even a creative industry incubator. Yanjiyou is said to be attracting 10,000 visitors daily. It even has to cap the numbers at weekends. The popularity of the concept store has prompted the bookseller to plan 40 additional outposts across China this year.
Yanjiyou’s initial success is one indicator that those predicting the death of bricks-and-mortar marketplaces were premature. Exhibit two: Suning, a Nanjing-based retailer, which has also extended its physical footprint. Earlier this month it bought 37 department stores from Wanda Group, which has been shedding its property assets (see WiC438).
“The acquisition is an important step for Suning’s expansion in omni-channel retail in 2019, and will be illustrative of its smart retail capacity,” said Zhang Jindong, Suning’s boss, who announced the deal at a gathering this month.
The deal is believed to be worth less than Rmb7.9 billion ($1.2 billion), or 10% of the net asset value of Suning’s listed unit, given the company did not need to make a disclosure on the Shenzhen bourse.
“The bargain basement price marks a steep discount to the value that Wanda had once placed on its retail effort,” wrote Mingtiandi, a real estate news portal. Typically set up as anchors in Wanda’s malls across China, these retail outlets are mainly located in the central business districts of tier-one and tier-two cities, with potential footfalls of over 4 million people.
For perspective, Alibaba privatised Intime Retail for HK$19.8 billion ($2.52 billion) last July. The Beijing-based company operates 17 shopping malls and 29 department stores, with the majority in Zhejiang province.
Set up in 2007, Wanda’s retail unit used to be one of the four pillars of the conglomerate’s sprawling empire. Yet it had made losses since 2014, closing 56 stores the following year, according to Beijing News, which noted that Wanda’s exit from the property sector – through selling hotels, theme parks and commercial real estate to the likes of Sunac and Guangzhou R&F – had reduced the company’s economies of scale in attracting quality brands.
On the contrary, Suning is aggressively building its portfolio of consumer retail services. Last January, it joined Tencent, JD.com and Sunac to buy a 14% stake in Wanda Commercial Properties (see WiC396), and in April it took over Madrid-based DIA Group’s retail operations in China.
The buying spree is meant to support Suning’s ambitions to quintuple its physical retail outlets to 20,000 by 2020, according to the Economic Observer.
“The structure of Suning’s offline sales points can be summarised as ‘Two Bigs, Two Smalls, and Miscellaneous Specialists’,” explained 36Kr, a local news portal. ‘Two Bigs’ refers to Suning’s two shopping mall brands, and ‘Two Smalls’ its department stores and convenience stores. ‘Miscellaneous Specialists’ include theme-based stores with a focus on kids’ products, fresh produce and sports.
Although Suning has high hopes that its growing footprint will help it reach gross transaction values of Rmb4 trillion (yes, that’s $595 billion) by 2020, some of its retail units are already racking up liabilities due to breakneck expansion. As of last July, for instance, Suning Convenience Stores saw its debts balloon 34 times to Rmb887.6 million in a year, and its net losses widen nearly 20 times to Rmb296.3 million.
Meanwhile the competition hots up: Hangzhou-based Alibaba is no slouch in the expansion stakes and is reportedly in talks with Germany’s cash-and-carry grocery seller Metro in the hope of acquiring its operation in China. The deal would give the e-commerce giant an extra 95 megastores across the country to complement its various fresh produce affiliates such as Hema, Yiguo and hypermarket chain Sun Art Retail Group.
The move parallels Tencent’s investment in supermarket chain operator Yonghui and Carrefour China last year, as well as JD.com’s strategic partnership with Walmart since 2016.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.