It's lunchtime and streams of people stroll around GoMarket, a convenience store in Beijing's Chaoyang District, where import snacks and healthy beverages are sold to the white collar workers who frequent the neighborhood. "These days, convenience stores have become cleaner and more customer-friendly. Sometimes, I have my lunch here, and it's also a suitable place to take a stroll once I've finished eating," said Li Weiliang, a bank clerk who works nearby.

The recent sprouting of small convenience stores is part of an upward trend and a reflection of China's recovering physical retail sales. According to statistics from the Ministry of Commerce (MOFCOM), the sales of the 2,700 typical retail companies nationwide rose 4.6 percent in 2017, 3 percentage points faster than the growth speed of the previous year, while total profits climbed 7.1 percent, 11 percentage points faster over the same period.

China's retail industry had begun to show signs of a return to stable growth in 2017, but the recovery of physical retail will go even further this year according to MOFCOM spokesman Gao Feng, speaking at a press conference in January. But a few years ago, brick-and-mortar stores were scraping a living, squeezed by aggressive online competitors. What exactly is behind this turnaround in fortune?

Reaching synergy

Online retail sales hit 7.2 trillion yuan ($1.15 trillion) last year, an increase of 32.2 percent. "Physical and online stores don't necessarily negate one another. Survival of the fittest is the name of the game," Li Keaobo, Executive Secretary General of the Center for China in the World Economy, Tsinghua University, told People's Daily.

E-commerce alone should not be blamed for the lame performance registered by offline retail over the past few years, and potential still exists for the offline market, according to Li, who believes the frosty period from which offline retail is emerging should be seen as a transformative experience that will ultimately prove beneficial to the future of the sector as a whole.

"Offline retail has reacted in time and has made the right adjustments, which have sharpened its unique advantage in satisfying consumers' demands. Now, the chances are it may win back customer favor," said Li.

Looking back through the history of the business world, it is hard to find an example of a commercial activity dominated by a single business model.

"Now, online and offline integration is underway, and the two are moving forward shoulder to shoulder," said Ren Guoqiang, senior partner of Roland Berger Strategy Consultants.

Physical stores are actively embracing new technology in pursuit of transformation and upgrading, while e-commerce players are trying to infiltrate the offline world and energize brick-and-mortar stores, Ren noted.

"More and more Chinese retail companies have come to realize that the way out lies in tackling the issues faced by consumption and improving consumer experience through the innovation of business patterns and improvement of operation capacity," said Ren.

Changes afoot

The mutual prosperity of physical and online stores has been facilitated by the integration of upstream and downstream business, the multiplication of business models and the stretching out of sales channels.

In developing new business models, BingoBox and Taocafe are leading the way by exploring unmanned convenience stores, while Yonghui Superstore's brand Super Species has pioneered a new format by combining supermarkets with catering.

Some retail companies have also started making use of advanced information technology in multiple marketing channels, such as mobile terminals, self-service stores, physical outlets and television shopping platforms. China's largest e-commerce company Alibaba is pushing ahead with online-offline integration by linking arms with Intime Department Store, retail conglomerate Bailian and supermarket chain RT-Mart. Conversely, Beijing-based Wumart Stores Inc. has joined hands with mobile app Dmall to provide a supermarket self-checkout service.

In addition, some retail players are energetically promoting the extension of the supply chain toward the production end in order to reduce costs, match output with demand and improve cold-chain logistics and fresh food supply chains.

At the same time, retail giants are speeding up their plans to infiltrate small and medium cities, towns and rural markets. JD.com is striving to establish its supermarkets in small cities, while Suning aims to open 1,000 outlet stores in rural areas.

"China's retail industry should maintain the momentum we are seeing in its innovation," said Ren, noting that innovation should be targeted at specific consumer groups and pain points.

The coexistence of multiple channels represents a long-term trend," said Wang Chen, CEO of the GoMarket convenience store chain, in an interview with People's Daily. He suggested that the owners of physical stores adopt Internet thinking in their business operations, with online and offline operations able to complement each other.

According to Li, the environment for the development of the retail industry still needs to be improved. No matter if brick-and-mortar retailers seek to expand online or vice versa, a fair and ordered competitive environment is indispensable.

At present, online sales account for 15 percent of physical commodity sales. This given, proper supervision is quite necessary for the healthy development of the retail industry, said Li.

"Efforts should be made to further standardize supervision and bridge the institutional cost gap between online and offline retail, in order to put in place a level playing field for the healthy development of e-commerce and traditional retail in the long run," said Li.

Copyedited by Laurence Coulton

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