forward-thinking players are redefining their relevance by shifting away from traditional retailing and embracing a more immersive, service-oriented and culture-led approach. Market struggles China’s department-store sector has long been a foundational part of the country’s commercial infrastructure, but in recent years, it has been under mounting pressure. Slower revenue growth, shrinking profit margins, and a dwindling share in the national retail economy have pushed many operators to re-evaluate their strategies. More than 70 per cent of surveyed department-store operators experienced year-on-year sales and net profit declines last year, including Xujiahui Shopping Mall and Inzone Group. Several legacy stores have closed or been absorbed into larger retail groups. Last year, Japanese department store operator Isetan Mitsukoshi closed its flagship store in Shanghai’s Westgate Mall on Nanjing Road after 27 years of operation. However, not all is bleak. In fact, for those willing to evolve, a new chapter of opportunity is emerging. Mounting pressure The report states that issues such as weak consumption and consumer diversion are directly reflected in insufficient store traffic, becoming a catalyst for subsequent problems. Nearly all surveyed department-store operators believe the current biggest challenge is insufficient purchasing power and consumption downgrade.  Within the broader context of structural adjustments in the consumer market, department-store retail is facing unprecedented pressure to transform its business. Companies can no longer rely on external expansion for growth. They are shifting focus to internal optimisation, improving management efficiency, and reducing operational costs.  Chongqing Department Store mentioned its plans to continuously reduce costs and improve operational efficiency through promoting business and finance integration: strengthening management of cash flow, capital, expenditure, debt, and inventory, optimising processes, increasing business guidance, and improving the efficiency and quality of operations. Direction of transformation and upgrading initiatives Retailers are recognising that today’s consumers want more than just products, they seek memorable experiences. In response, department stores are moving away from conventional layouts and adopting experience-first models.  Intime, for instance, has restructured its space to incorporate dining zones, art installations, and family entertainment areas. Wangfujing has launched culturally themed floors that celebrate heritage and storytelling, while Parkson has introduced beauty sections where consumers can test products and engage with brand narratives. This shift toward immersive retail aims to extend customer dwell time, build emotional connections, and increase conversion through engagement rather than pure transaction. The traditional reliance on rental income is no longer sufficient. Instead, department stores are diversifying their revenue structures, adopting hybrid models that combine rent, sales commissions, and brand collaborations. This shift has department stores behaving more like service platforms than mere landlords. Private label development, brand joint ventures, and collaborations with popular intellectual property are becoming essential tools for differentiation and higher profitability. These moves help stores retain relevance while competing more effectively with digitally native and mall-based brands. Digital transformation has become a non-negotiable priority for department-store operators. With consumers increasingly comfortable with online shopping, bricks-and-mortar stores must integrate digital touchpoints to remain competitive. This includes leveraging platforms like WeChat mini-programs for mobile-based shopping, using livestreaming to introduce new products or drive traffic, and adopting data analytics and customer relationship management systems to personalise marketing. Omnichannel strategies are now central to retail operations, aiming to create a seamless experience that bridges the gap between online engagement and offline discovery. Rather than being all things to all people, department stores are focusing on categories with strong growth potential. These include luxury fashion, high-end cosmetics, lifestyle products, pet care, and niche fashion brands. Gen Z consumers and affluent female shoppers are especially drawn to curated selections that reflect their values and aesthetics. Department stores are adjusting their assortment strategies accordingly, spotlighting emerging designers, local brands, and exclusive collaborations that offer a sense of discovery and uniqueness. Beyond merchandise, successful department stores are those that can cultivate a sense of place and purpose. This means localising not just products but also the store experience. Increasingly, stores are incorporating art exhibitions, wellness programs, parenting workshops, and other community-driven initiatives that embed them into the social fabric of their neighborhoods. Cultural storytelling and localised campaigns are helping these stores resonate more deeply with customers who seek authenticity and connection in their retail environments. Strategic priorities for the future  The report notes that department stores, looking ahead to this year and beyond, are positioning themselves not merely as places to shop but as multifunctional lifestyle anchors. The concept of the ‘third space’, a welcoming environment between home and work, is driving the evolution of store layouts and service offerings. Retailers are also doubling down on cultural integration, creating partnerships with artists, museums, and heritage institutions to inject emotional value into the in-store experience. While some department-store groups are exploring cross-border expansion, particularly in Southeast Asia, many are focusing on domestic growth by aligning with China’s national consumption strategy and promoting local pride through China-chic branding. Further reading: Decoding Chinese consumer spending behaviour in 2025.