Vendors of used mobile phones take a break at noon in an electronics shopping mall in Shenzhen, in South China's Guangdong province. Online trading platforms have reduced people's reliance on traditional digital products retailing markets. [Photo / China Daily]

Traditional stores fight back against online tech retailers

SHANGHAI - As digital product retailing businesses are seeking better ways to develop in the Chinese market, industry experts said improving service quality and enhancing consumer experience are key to survival.

They said the development of online trading platforms and lack of self-discipline have led to the traditional bricks and mortar market gradually losing its competitiveness. At the same time, large home appliance retailing giants such as Suning and Germany-based Media Markt have moved into the sector, making it more competitive.

"The development of online trading platforms and the increasing number of new players have reduced people's reliance on traditional digital product retailing marts and constrained the development of retailing malls," said Scott Chu, the chief executive officer of Cybermart. Cybermart is a subsidiary of Foxconn Technology Group, which is owned by tycoon Terry Guo.

A report from China IntellConsulting Corp, a consulting firm specializing in e-commerce, suggested that online sales revenue of digital products reached 64 billion yuan ($9.8 billion) in 2009, an increase from 38 billion yuan in 2009. The figure is expected to increase further when the online trading environment improves.

"Consumers can find the same products online at much lower prices, so there is no need for them to visit bricks and mortar stores," said Chen Shousong, an analyst from Analysys International.

Poor shopping experiences are another factor that have driven consumers away from retailing marts. Consumers are not willing to visit traditional digital product shopping malls because they don't like the business environment or the pricing system.

"I feel uncomfortable visiting digital product trading markets because I am afraid of being cheated or buying fake products," said Xia Yue, a white-collar worker in Shanghai. "They have no credibility."

The closure of Pacific Digital City (PDC) on June 30 this year in the Zhongguancun area of Beijing is an indication that life is no longer easy for the sector and there is no longer fast money to be made. PDC was once one of the top three digital product retailing marts in Zhongguancun.

Li Yi, secretary-general of China Mobile Internet Industry Alliance, said on his micro blog shortly after the closure of PDC that all digital product retailing malls would close in the next five years.

Li's view is not shared by all industry insiders.

Ke Qingyang, chief executive officer of Taiwan-based digital product retailing mart operator Buynow in East China, said PDC's closure might not fully reflect the situation across the industry.

"We have recognized there are many problems in the traditional digital product retailing industry. However, even in the United States many people are still buying digital products from traditional stores, so we think the business will continue to exist in the short term," said Chu from Cybermart.

Although not everyone in the industry agrees with Li's opinion, many believe the industry should reform so it can continue to develop.

"We have realized that service quality and credibility are two key factors that can make consumers come back," said Ke from Buynow. "We will pay more attention to guaranteeing a pleasant experience for customers."

Chen from Analysys International added: "It is essential for market operators to establish a monitoring mechanism to improve service quality and the credibility of retailers."

To support the growth of the business, retailing mart mangers have been looking at ways to increase profitability.

Buynow has developed its own online trading platform to provide more choice for customers and allow them to compare prices.

Cybermart said it is considering different development strategies for first-tier cities and their smaller counterparts. Chu told China Daily that the company is planning to operate directly managed small-sized boutique stores in large cities in China to strengthen its position in saturated markets such as Beijing and Shanghai. The new stores will be opened in local communities rather than the central business areas. The first store is scheduled to open in the near term.

"The new store will pay more attention to enhance the experience of customers," said Chu. "We think price is not a key consideration for people in large cities, so we will allow more flexibility in the management process."

Chu said the development in third- and fourth-tier cities will stick to the current model, but it will allow customers to buy certain personalized products to make the shopping experience more enjoyable.

Although there are many problems for the businesses to overcome, industry players still feel confident about their development in the Chinese market.

Buynow plans to open 75 stores in China and Cybermart plans to increase the number of its stores to 50 before 2013.

Wendy Qian contributed to this story