With brick-and-mortar retail continuing to face down the challenge of e-commerce, many physical retail companies in China are actively seeking ways to transform their business. On 12 May, Beijing Wangfujing Dong’an Group visited Sanpower Group for discussions, with the two parties agreeing on their intention to form a strategic partnership. Both parties would play to their respective strengths, integrate business resources, use their synergy to develop an innovative “department store 4.0” model and achieve mutual benefit.

According to data from the Ministry of Commerce of the People’s Republic of China, total retail sales for consumer goods in 2015 reached an astonishing 30 trillion yuan, an increase of 10.7% compared to last year. A significant part of this increase was driven by online spending. In the meantime, the rapid development of the mobile Internet has greatly impacted the consumer and consumer behaviour. Therefore, transformation and change for brick-and-mortar retail has become inevitable. How can a company achieve breakthrough innovation in its business model and operations in the department store industry? This is a common question that all retailers are facing.

Yuan Yafei, Chairman of Sanpower Group, is well versed in this sore spot for traditional department stores. From 2014 onwards, Sanpower Group started going global and carried out M&A activities, acquiring many quality assets overseas. This has created synergy with the tranformation and upgrade of the group’s domestic retail business through introducing advanced products, technologies, business models and management systems from abroad. In April, 2014, Nanjing Cenbest, held by Sanpower Group, acquired the quintessential British department store House of Fraser. This acquisition shook the industry and the outside world too was curious. Why did Sanpower acquire a foreign department store brand when domestic department stores were already struggling? Yuan Yafei explained the purpose of the acquisition thusly: House of Fraser owns a mature buyer system as well as house brands, which can solve the problems of selling the same products as everyone else and lower gross profit margins, among others. After acquisition, the buyer system and house brands can be introduced to help Nanjing Cenbest upgrade and transform from a traditional department store to a modern one. This is what Yuan Yafei calls the 2.0 model of department store.

But it is not the end of this story. According to Yuan Yafei’s thinking, there is still department store 3.0 and then 4.0 awaiting development. Compared with 2.0, 3.0 will build on the buyer system and house brands to create scenario-based consumer experiences and achieve online-to-offline (O2O) data sharing. To this end, Sanpower Group and its strategic partners have also acquired Brookstone, a novelty product brand from the USA, and Hamleys, a 256-year-old British toyshop recognised by the British royal family. Sanpower is introducing their sales experience in creating scenarios and experiences, which gives the company the edge in experience-based consumption.

After 3.0, version 4.0 of the department store will be data-driven, utilise online channels and be integrated with Sanpower’s financial business. This October, Sanpower’s department store version 4.0 will be brought into being to test the waters. Built on the new business model of “house brands + buyer system + scenario-based sales + O2O + finance”, Orient Fraser will open in Xinjiekou, Nanjing.

Wangfujing Dong’an Group is rich in commercial resources and business channels. It owns Wangfujing Department Store, which is 61 years old and well known across China. It has 47 stores in the PRC, including department stores, shopping centres and outlet stores, most of which are located in commercial city centres. Liu Yi, Chairman of Wangfujing Dong’an Group noted that Wangfujing Dong’an was also searching for a new growth strategy and actively adopting innovative new practices under the economic new normal. The company is working to establish an omni-channel retail model to achieve its strategic goal of “One Customer, One Wangfujing” and improve its “two major capabilities”, that is to focus on the capabilities of the customer and the product. For the customer, that means to thoroughly research customer demand and work around the pain points and difficulties that customers face. In terms of products, this means gradually expanding its business in own house brand products, integrating clusters of house brands, and developing scenario and experienced-based consumption patterns. This is in line with the strategic thinking and practice of Sanpower Group on how to turnaround retail businesses. Therefore, two parties very quickly reached agreement on their intent to cooperate.

It is reported that both parties intend to cooperate in the area of house brands, buyer system brands and other supply chain resources and in introducing the overseas M&A business resources of Sanpower, such as House of Fraser, Brookstone and Hamleys, into Wangfujing Dong’an Group. They will jointly create version 4.0 of the department store through data sharing in O2O among other areas. In the meantime, both parties are willing to seek common development through joint investments and M&A activities to achieve three types of control in the future: the strategic goals of controlling scenarios, controlling brands and controlling channels.

Both parties also noted that Wangfujing Dong’an Group and Sanpower Group hold the same understanding about retailing and the same judgements of its trends. Both parties believed that the position of any future offline business would be to not only meet material needs, but also meet spiritual needs. Only brick-and-mortar businesses that can satisfy the spiritual needs of consumers have prospects, which is the basis for cooperation between the two parties. Reaching an agreement on the intention for a strategic partnership has laid a good foundation for mutually beneficial cooperation between the two parties.

Both parties also noted that Wangfujing Dong’an Group and Sanpower Group hold the same understanding about retailing and the same judgements of its trends. Both parties believed that the position of any future offline business would be to not only meet material needs, but also meet spiritual needs. Only brick-and-mortar businesses that can satisfy the spiritual needs of consumers have prospects, which is the basis for cooperation between the two parties. Reaching an agreement on the intention for a strategic partnership has laid a good foundation for mutually beneficial cooperation between the two parties.