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Wanda Group Announces Reduction of Department Stores, Closure of Karaoke Bars

| Aug 04, 2015 07:25 AM EDT

Wang Jianlin's personal fortune has reached $42.6 billion.

Wanda Group, one of China's largest real estate and entertainment conglomerates, is planning to undergo a strategic transformation that involves closing several department stores and pulling out its investment in karaoke bars in efforts to restructure its traditional businesses and adapt to changes in the consumer market.

Amid the rapid development of e-commerce and the shifting of consumer preference from department stores to malls, as well as other sweeping changes in Chinese consumption patterns, Wanda's department stores have suffered losses, according to a statement by Qu Dejun, president of Wanda Commercial Management Co.

"It's a normal business practice to make adjustments to these department stores. Wanda's recent adjustment is a proactive one based on market prospects and consumer demand, which will lead to higher rental income," Qu said.

On July 11, Chairman Wang Jianlin announced that Wanda will reduce the number of physical stores, with the help of online stores.

Qu also announced that the karaoke parlor business is no longer aligned with the business needs of Wanda, considering small profit margins.

The statement was made after reports that Wanda will close half of its department stores and 80 karaoke bars.

As of June 30, Wanda's website listed 86 department stores nationwide.

According to an internal document from the group, Wanda is closing more than 40 unprofitable department stores across the country and reducing floor space in 25 stores that are underperforming in Shanghai, Chongqing and other cities. Some of the department stores that are listed to be closed include those in cities such as Ji'nan in Shandong Province, Tangshan in Hebei Province and Jingzhou in Hubei Province.

Wanda informed vendors renting space in their department stores in early July about the termination of their leases. The group aims to adjust its stores to offer more satisfying experience to shoppers.

Wanda is not the only company to close department stores in recent years. Since 2013, major department store chains, such as New-Mart, Isetan and Takashimaya, have closed stores in China, often citing unprofitability due to high rent.

E-commerce with online stores, which the Wanda Group is favoring over physical department stores, has the advantage of lower costs for rent and labor. This allows them to keep their prices low.

Internet shopping gained momentum in China in 2003, following the outbreak of severe acute respiratory syndrome (SARS) that encouraged people to shop at home. More than a decade later, China is one of the world's largest online retailing markets.

The trend for a while now among Chinese consumers has been to go to the department store to know what to buy, and then buy it online.

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