Taiwan’s Department Stores Continue Expansion

Some major new projects are in the works for Taipei’s Xinyi district.

When the Breeze Center opens its latest outlet in the new 48-story Nan Shan Plaza later this year in downtown Taipei’s Xinyi Planning District, it will be the 14th department store or shopping mall within an area of half a square kilometer – the highest density in the world, according to industry experts. It will be Breeze’s seventh outlet and the third in the Xinyi Planning District.

Two additional major retail ventures are scheduled to open in the area over the next two years, further buttressing Xinyi’s claim to being Taiwan’s foremost shopping site and a mecca for tourists. The two projects are a branch of the Far Eastern Department Stores due to open in 2019, and a large shopping center in the 46-story Taipei Sky Tower being constructed on the former site of the CTBC Financial Holding Co. headquarters, expected to be completed in 2020.

Breeze Center will open a new outlet at the projected Nan Shan Plaza in the Xinyi Planning District at the end of 2018. Photo: Breeze Center

The Taipei Sky Tower, a project of investment fund Riant Capital, will also contain two Hyatt brands of hotels – a Park Hyatt and an Andaz. The shopping center portion, which will cover two basements and seven floors above ground, will depart from the Japanese orientation prevalent in Taiwan’s retail sector. Instead it will seek to attract the kinds of international brands found along New York’s fashionable Fifth Avenue.

Department stores in the Xinyi District currently generate sales of NT$60 billion a year (around US$2 billion) out of the total industry revenue of more than NT$330 billion. The concentration of department stores in the area, and the ease of moving from one building to another by means of overpasses or underground passages, has made Xinyi a favored destination for shoppers, whether they are in the market for quality daily-life items or fashion goods.

The area is also a popular location for dining, with a broad range of types of cuisines available, and for entertainment, including the Vieshow Cinemas multiplex, the ubiquitous street performances, and the chance to take in a bird’s-eye view of Taipei at the Taipei 101 observatory. Together, the shopping, dining, and entertainment options constitute the “experience-style consumption” model that has enabled the department stores to sustain brisk business, bucking the rising tide of e-commerce.

The dining component has become an increasingly prominent feature of the department store operations. In the four outlets in the area of the Shin Kong Mitsukoshi Department Store, the industry leader, there are 34 restaurants offering many different types of cuisine. Japan’s well-known Ichiran Ramen, for instance, caused quite a stir in June last year when it opened its first Taiwan store in the area. There was a line of customers in front of the shop night and day for nearly 300 hours. A second store opened in basement one of the A11 outlet of Shin Kong Mitsukoshi on June 1 this year. Ichiran’s around-the-clock operations have prompted numerous other dining outlets in the area’s department stores to extend their business hours well past midnight.

A Shin Kong Mitsukoshi store decked out with Christmas-season decorations. Photo: CNA

At its 16 locations nationwide, Shin Kong Mitsukoshi has a total of 250 restaurants and coffee shops, which generated sales of NT$11.5 billion, or 15% of the overall revenue of NT$78 billion. Only cosmetics, with 16.5%, accounted for a large proportion of sales. In view of the growing importance of in-store dining, an online system was introduced last year for reservations and to permit wait-listed customers to check on when their table is expected to be ready.

In recent years, Shin Kong Mitsukoshi has been soliciting renowned local restaurants to set up branches in its stores. “Taiwan has many excellent well-established restaurants that can utilize our department store as a platform to extend their reach,” says Executive Vice President Wu Hsin-yang. “Many of them have responded favorably to our offer, though sometimes it takes repeated invitations.” He notes that some of the restaurants are “operating like taverns,” staying open as late as 2 a.m.

The Far Eastern Group, which owns the Pacific Sogo chain and Far Eastern Department Stores, the second and third largest department store brands, has also been following the “experience consumption” strategy. Its Big City Shopping Center, launched in Hsinchu in 2012, features a Pacific Sogo store with shopping, dining, and entertainment under one roof. Big City’s NT$11 billion in revenue last year gave it a 60% market share in the Hsinchu area.

Encouraged by the success of Big City, Far Eastern Department Stores is preparing two more projects – the above-mentioned outlet in the Xinyi Planning District and one in Hsinchu County’s fast-growing Zhubei City that will also embrace a shopping-center format.

Ways to lure customers

In the constant effort to attract customers, the department stores also regularly refresh their interior design, adjust their merchandise mix, and hold special events.

In early 2018, for instance, Shin Kong Mitsukoshi welcomed the advent of spring by displaying installation artworks with floral images at its Xinyi outlets. As part of a special promotion at its A8 store in the district, last December it installed the longest slide in Asia – extending from the third floor to basement one. Another example is the botanical theme at the grooming-product boutique in the A11 outlet featuring a light wall projecting floral patterns, unpainted wooden furnishings, and hanging potted plants.

Local department stores have also been aware of the business potential associated with the large numbers of customers passing through mass-transportation stations. For instance, inauguration of the Taoyuan Metro – the rail line linking the Taipei Main Station and Taoyuan International Airport before reaching Taoyuan City – has given a strong boost to the business of the Pacific Sogo in Zhongli, as well as other retail outlets along the route, including the Mitsui Outlet Park in Linkou, Tai Mall Shopping Center in Taoyuan’s Nankan, and the Linkou and Taoyuan outlets of the Global Mall Shopping Center.

Pacific Sogo is highly familiar with the benefit of being close to a transport hub, due to its experience with its outlets at the busy Zhongxiao-Fuxing MRT station in Taipei.

Start-up of the Taoyuan Metro service has also been a boon for the Taipei Main Station outlet of Breeze Center. Since taking over the management a decade ago, Breeze has turned the site into a cash cow, generating annual sales of NT$3 billion, 15% of the company’s total. Thanks to the excellent performance, Breeze Center is expected to retain the franchise after expiration of the current 10-year contract at the end of 2018, enabling it seek ways to further the business potential from the more than 500,000 passengers passing through the station daily.

Another example of strategic location is the Uni-President Department Store in the Xinyi Planning District, located in a 31-story building that also houses the Taipei City Hall Bus Station, a hub for long-haul bus lines. The structure is also connected to the Taipei City Hall Station of the Taipei MRT, which serves some 8,000 commuters during rush hours.

To meet the needs of the commuters, Uni-President has installed a dedicated breakfast section with some 20 stores offering various kinds of breakfast foods from 7:30 a.m., even before the department store opening at 11.

Special sales campaigns continue to be important revenue producers for the local department stores, especially the anniversary sales generally held in the fall. Taiwanese customers have formed the habit of concentrating their purchases of jewelry, consumer electronics, fashion goods, bedding, kitchenware, and other products at the time of the anniversary sales so as to take advantage of the deep discounts, typically 10%.

Credit card purchases during this period often exceed NT$1 million in value. During the anniversary sale at the Far Eastern department store in Hsinchu last October, one male customer spent NT$8 million on jewelry, receiving some NT$1 million worth of merchandise vouchers in return.

The 12-day anniversary sale at Pacific Sogo last November generated some NT$10.6 billion in revenue, nearly one-fourth of the NT$43 billion in revenue for the entire year. The Zhongxiao branch, the company’s first store, set up in 1987, spearheaded the sales of cosmetics, enabling it to retain first place among Pacific Sogo outlets in Taiwan in terms of sales per ping for the 30th year running. The store’s eight cosmetics boutiques recorded sales exceeding NT$100 million in 2017.

On the basis of strong anniversary sale performance, the total revenue of local department stores inched up by 0.4% in 2017 to reach NT$334.6 billion, overcoming a sales decline in the first half of the year.

Taipei remained the largest market, accounting for around one-third of the national total. Taichung was second, although Shin Kong Mitsukoshi’s Taichung store registered the highest sales of any single department store on the island with NT$17.5 billion. Kaohsiung, where the market leader is the Hanshin Department Store, stood in third place.

So far in 2018, department-store sales have improved, rising by 2.6% year-on-year to NT$157.1 billion in the first half.

Generally speaking, however, Taiwan’s department-store market is considered to be saturated, due to the growing competition from e-commerce and other retail channels, as well as the excessive number of players. There is one department store for every 87,000 people in Taiwan, compared with 300,000 in Japan.

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