In the landscape of global commerce, few sectors evoke as much intrigue and promise as the consumer goods market in China. With higher than expected growth, a burgeoning middle class, and evolving consumer preferences, China stands at the forefront of the retail revolution. According to a report by Fung Business Intelligence and China Commerce Association for General Merchandise (CCAGM), the consumer goods market in China is expected to grow in 2024 with the proactive policies of the government and the recovery of consumer confidence.The latest forecasts predict that China’s GDP and total retail sales of consumer goods will hit growth rates of 4.8 per cent and 6 per cent respectively. Two thirds (66.3 per cent) of surveyed department store operators expect their sales to grow in 2024, a significant decrease from last year’s 85.7 per cent.The report revealed that while department stores and convenience stores experienced higher growth rates than total retail sales, supermarkets faced negative growth for the first time.Facing stiff competition from e-commerce platforms, department store operators are actively pursuing transformation. With consumer demand still not fully recovered, competition within this space is intensifying.Key highlightsAccording to Helen Chin, vice president of Fung Business Intelligence, the report underscores a notable recovery within the department store sector, with a trend towards increasing differentiation among enterprises.“Key insights include a pivot towards enhancing quality and efficiency, with digitization playing a pivotal role in improving operational efficiency and profitability. It also highlights the significance of store renovations and the intensified competition in key categories, such as cosmetics, which has led to stagnant growth in some areas,” she told Inside Retail.Chin also said that backend data collaboration is emerging as a crucial trend. Companies are addressing the lack of interoperability of backend systems, which poses a significant challenge to further digital transformation.“Approximately 65.4 per cent of department store operators prioritize the integration of internal systems as their main direction for digital investments, indicating the trend’s significance in enhancing operational efficiencies and competitiveness in the digital landscape,” she added.Challenges and opportunitiesShe went on to say that department store operators are facing challenges such as high operational costs, low profits, decreasing foot traffic and the overall difficulty of constructing new digital systems.The digital complexities arise from integrating numerous systems, scalability issues and system obsolescence. Moreover, quantifying the ROI on digital investments remains a difficulty for advancing digital initiatives.“To counter e-commerce competition, department stores are diversifying their strategies by emphasizing stronger engagement with brand merchants, transitioning from a merchandising focus to a consultancy role,” she noted.This includes exploring innovations in shopping environments and formats. Additionally, there’s a focus on precise positioning and niche market targeting through renovation exercises and community-focused commerce.Niche strategiesSuccessful niche strategies include the transformation of department stores into community lifestyle centers and shopping environments that offer diversified consumption scenarios. “For instance, the Chongqing department store integrated commerce, culture, and tourism elements to create unique consumer engagements like the ‘Time Tower’ and the ‘Life Aesthetics Academy’,” she said.Chin also revealed that department stores are increasingly serving as consulting advisors to brand merchants, offering professional operational advice and data support. “This collaborative approach aims to enhance sales performance and share successes. Digitalizing operational data and crafting tailored operational strategies in collaboration with brands are examples of innovative practices being adopted,” she stressed.Another interesting trend is that with the growth of online retail and the increasing share of non-physical goods sales, department store operators are enhancing their online marketing efforts. “Challenges include talent shortages and backend system coordination, highlighting the need for comprehensive domain operations and the use of technology to boost online sales and marketing efficiency,” Chin opined.Future recommendationsAccording to Chin, there are some recommendations in terms of policy changes for transformation support. She believes that this should include optimizing the business environment and upgrading these enterprises towards more sustainable and digitally integrated operations.Chin singled out companies like Unifi3D in China that was recognized for its innovative practices in 3D digital content creation, facilitating end-to-end digital transformation for clothing brands and department stores.“This contributes to sustainability, environmental protection, and carbon neutrality, showcasing a leading example of retail innovation,” she explained.Ultimately, Chin believes anticipated trends for this year include a continued focus on digitization, sustainability, and niche market targeting.She believes the core challenges will revolve around maintaining competitiveness against e-commerce, integrating advanced technologies, and navigating the evolving consumer preferences.