Dalian Wanda, the commercial real estate developer controlled by Chinese billionaire Wang Jianlin, is planning to close 40 of its department stores and 80 other venues as the company shifts its focus to new business areas such as ecommerce and finance.
The move to close the stores, which have yet to be identified, is the second round of venue closings for Wanda this year. The move would decrease the size of one of Wanda’s primary business lines by more than 40 percent.
Despite the setbacks in its existing retail businesses, Wanda has set the goal of becoming a service industry titan, sketching out a plan to become a $200 billion global conglomerate over the next five years.
Wanda Malls May Lose Their Anchors
Wanda’s plan to close the 40 department stores, along with 80 karaoke dens, was reported this week by the official China Daily, which cited a source “close to Dalian Wanda.” The newspaper indicated that the planned closures of the retail outlets were aimed at cutting the company’s reliance on the real estate sector and at diversifying its business.
According to Wanda’s website, the company operates 99 department stores nationwide, which means the new plans represents more than a 40 percent reduction in what now constitutes one of the company’s four major business lines, along with commercial real estate, hotels, and culture & tourism. Earlier this year Wanda had targetted its department store division for expansion, planning to reach 120 outlets by the end of 2015.
The department stores are typically set up as anchors in Wanda’s malls across China. Traditionally, Wanda has followed an integrated development model where its department stores and movie theatres anchor its malls, which in turn form a retail hub for developments incorporating residential and office space as well.
The company has opened new projects at breakneck speed over the last decade, and had more than 100 malls across China by the end of 2014. In March of this year, Wang Jianlin announced plans to open 900 more new malls across China by 2020.
Just two months before unveiling the retail expansion plan, and just a few weeks after the company’s $3.7 billion Hong Kong IPO, Wanda had announced that it would close 10 of its department stores and restructure 20 more. It is not clear if the current plan to close 40 stores is in addition to the earlier plan.
In general, department stores have struggled as China’s increasingly sophisticated consumers flock to more specialised shops or make their purchases over the Internet. Government data showed that during the first three quarters of 2014, year-on-year sales growth at department stores across China reached just 6.6 percent, compared to 10.5 percent for offline retail as a whole.
Moving From Department Stores to Finance and Ecommerce
While the planned department store closings represent a major setback for one of Wanda’s existing business lines, the company has already come up with plans to try its hand at new areas.
Speaking at a conference in Chengdu last week, Wang Jianlin unveiled a scheme to make Wanda into the world’s biggest tourism company. In an address to the conference attendees, Wang predicted that Wanda’s new chain of theme parks would attract 200 million visitors in the year 2020, and that the company’s tourism revenues would reach RMB 100 billion ($16.1 billion) that same year.
The tourism plan follows just a few weeks after Wang laid out plans to transform Wanda into a $200 billion global conglomerate by 2020, by creating new business divisions focused on finance and ecommerce. The new business lines would be in addition to its existing real estate business, and its cultural division, which centres around the company’s chain of cinemas.
Wanda’s new ecommerce division would include crowdfunding, smart card systems, and what the company refers to as “experimental products.” In finance, the company plans to enter into banking, securities, insurance, investment, and online payment ventures.
Wanda, which already has made $2.5 billion in acquisitions this year, has indicated that it will build its new business lines primarily through more M&A.
In laying his company’s plans for new businesses, Wang has emphasised that Wanda’s future is in the service sector, which China’s government has targetted for growth and where the company hopes to escape the slowing returns of the real estate industry. Services such as department stores and karaoke parlours seem to no longer be part of Wanda’s bold new future.