Sunday, November 19, 2006

Department Stores and Falling Prices

As Taiwan's income distribution continues to become ever more M-shaped -- with peaks in the lower middle class and at the top -- the island's innumerable department stores feel the pinch of both transient economic effects, and the growing wealth disparity here.

Typically offer customers vouchers worth around 10 percent of the products they purchase in addition to marking prices down by significant discounts on products ranging from cosmetics, shoes and clothes, to daily necessities and foodstuffs offered in the stores' supermarkets. Cosmetics and beauty products, usually given prime locations on the first floor, often rank as department stores' top sales category. A Shin Kong spokesperson confirmed that, for her company, beauty products represented 30 percent to 40 percent of total sales. Some companies even reward regular card-holding customers with a monthly gift just for turning up at the store, while those who spend more than certain quotas can have their names entered into draws, with prizes ranging as high as automobiles.

Desperate discounting reflects something profound occurring in our economy. Is it merely a blip, or the signal of a trend? To wit:

To add to department store woes, sales for all retail sectors are still struggling. The Consumer Price Index fell in October for the third straight month, which indicated sluggish public consumption, said Kuan Chung-ming, director of the Institute of Economics of Academia Sinica, in a local report. Kuan did not identify any signs of deflation from this falling CPI. Market analysts will have to wait until the release of next month's index to see what effect the department stores' anniversary sales have, however.

Meanwhile, the Beautiful Isle is actually a world leader in something

Such promotional activities and their frequency may also reflect the desperate situation in which an excessive number of department stores must compete for a limited market of customers, however. In Taipei's five main commercial districts, for example, 26 department stores compete for the disposable incomes of the capital's 2.6 million citizens. This ratio of one department store per 100,000 people makes Taipei the city with the most department stores per head of population in the world, according to the CNA. This figure far exceeds what CNA reported the Japanese government termed the "appropriate ratio of department stores," which was expressed as one store measuring about 33,000 square meters of retail space per 500,000 to 600,000 people.

Although I have heard that Taichung exceeds Taipei in department store space.


Anonymous said...

The high number of department stores may be related to the fact that until very recently there were no shopping malls and relatively few large supermarkets in Taiwan. Both shopping malls and supermarkets have expanded significantly in recent years and I would guess that it has drained a lot of the customers away from the department stores.

Michael Turton said...

Yeah, and there's online shopping now too. If my wife didn't have that, she'd probably be hitting the department stores.


Anonymous said...

First of all, what they call a "department store" is a little off. Sogo and other stores seem more like a mall with tons of mini-stores. It isn't like Nordstrom's where you go to one counter for all returns (as if you can actually return something at the dept. stores here).

I am not sure about Taipei having the most department stores. Medford, Oregon, pop. 43,000, has three department stores, not counting Target.

Anonymous said...

Clyde Said:

FYI, Taichung does compete with all of S.E. Asia for the top slot of department store floor space. Taiwan's retailing sector follows the Japanese model of department stores (not American malls) as one-stop-shopping centers.

However, the rapid expansion of hypermarkets in Taiwan (since the late 90s) has flooded the market and hurt all involved. Carrefour in recent months has seen revenue declines of 20%-50% at same store sales. Tesco, and others, have pulled out. 7-Eleven's expansion into numerous product lines and the success of stores like Watsons, and now hybrid store formats like 小北百貨(that combine night-markets and modern retail formats) have all pulled shoppers away from department stores. EHSN's home shopping network has come close to QVC's revenue even though Taiwan's population is much smaller, EHSN has been running only for seven years, compared to QVC's 20 years.
Taiwan television home shopping research and introduction

Lastly, however, what I've heard from managers in the retailing sector is that the economy is slowing and there are larger slow downs to come. There simply is not much cash flowing into Taiwan.

Michael Turton said...

Thanks, Clyde. Very useful comments.