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Takashimaya decides to stay in Shanghai after foreign retailers' exits

Last-minute U-turn may have involved local governent's taxes as well as rent support

Takashimaya announced it would stay in Shanghai just two days before the planned closing of its money-losing outlet in August, after it had already held clearance sales. (Photo by San Miao Photo)

SHANGHAI/TOKYO -- Japanese department store Takashimaya was on the verge of becoming the latest foreign retailer to withdraw from the Chinese market, following such others as French grocery chain Carrefour, until Shanghai offered incentives to convince it to stay.

Takashimaya announced its U-turn just two days before the planned closing of its money-losing Shanghai outlet last month, after it had held clearance sales and put up notices in three languages.

The company's only outlet in China had to make adjustments following the sudden decision, to secure staff and products enough to run the store, a spokesperson said.

Incentives offered to Takashimaya by the local government may have involved taxes as well as rent support. 

The city's unusual move was arguably a political decision meant to help reverse losses of foreign investment.

Foreign investment into Shanghai contracted in 2017 for the first time in 18 years, declining 6% to $17 billion, according to official data or the Shanghai Municipal Commision of Commerce. The figure rebounded by 1.7% last year, but that did not weaken the city government's resolve to solidify its position by opening up further.

"The world is competing for new industries amid the rise of trade protectionism and trade wars after the financial crisis of 2008," Quan Heng, an official at the Shanghai Federation of Social Science Associations, said.

Quan cited as an example Shanghai's newly expanded Lingang free trade zone, which emphasizes advanced industries like chipmaking and artificial intelligence. He said the easing of capital and trade flow in the zone will attract international resources to the city.

Shanghai has launched about 30 measures since Sept. 1 designed to entice multinationals to set up regional headquarters in the city.

They include a lower threshold for total assets of the parent company needed to qualify for regional headquarters status and its associated benefits. Multinationals involved in trade and logistics are allowed to share the same business license within their supply chain in selected areas.

Continued easing measures may explain the expansion by some foreign retailers in Shanghai, touted as China's economic center. U.S. warehouse-style retailer Costco opened its first Chinese store in the city to huge crowds last month, while Walmart equivalent Sam's Club in June launched a new store in Shanghai.

But big foreign players have stumbled in China's highly competitive market, where they have to catch up with rapid changes among consumers.

In June, Carrefour sold a majority stake in its 24-year-old China operation to local retailer Suning.com. Competition with players like Alibaba Group Holding and JD.com drove American e-commerce giant Amazon.com to end its marketplace in the country this year.

German retailer Metro is in the process of selling its China business, while Marks and Spencer and Macy's closed their online stores last year. Walmart still operates over 400 stores, but growth was flat in 2018 at 0.3%, Fung Business Intelligence said.

Achieving success nationwide in China is difficult, despite the ambitions of most global retailers. The country's vast scale means greater cost, as grocery retailers need to build the national supply chain including a sufficient number of distribution centers, said Jason Yu, managing director of greater China at consulting firm Kantar.

Teresa Lam, vice president of Fung Business Intelligence, also noted that a lack of local knowledge and understanding of consumers as well as the huge regional differences can create hurdles for foreign companies to "develop their businesses in a sustainable manner."

Digitalization and the fading boundaries among retail formats fuel increased competition among all sorts of retailers. Total retail sales of consumer goods rose 8.4% on the year for the January-June period, but the growth rate was much greater for e-commerce at 21.6%, according to Fung.

Department stores have faced pressure from e-commerce as well as other rivals including shopping centers in recent years. Even as Takashimaya continues operating its Chinese outlet, the business environment remains tough for a Shanghai store that has yet to be profitable since its launch in 2012.

Kao Yi-chen, a 24-year-old woman who lives near Takashimaya, said she often goes to Shanghai's IAPM mall rather than her neighboring department store.

"It is a great location in the city center, and they have different kind of brands," she said. "They have luxury, sports, restaurants and cinema."

The success stories for foreign retailers such as Japanese apparel brand Uniqlo and Swedish furniture retailer Ikea seem to depend on product appeal or branding.

Both Costco and Germany's Aldi launched brick-and-mortar stores this year, after checking the need for their products by opening online shops in the country. Costco's private label Kirkland Signature products called for strong demand even before its popular warehouse launch, noted Charles Chan, Senior Retail Analyst at  the Institute of Grocery Distribution.

"If you are offering average product, today's consumers won't buy," said Kantar's Yu. "They want high-quality products with good value."

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