R&F Tianhui Mall.

Grandbuy of Guangzhou recently signed a contract with R&F Properties to open a department store in the 30,000 sqm R&F Tianhui Mall in Chengdu, Sichuan Province. It marks a giant leap forward for the store that sells mainly watches, clothing, leather goods and household products.

This comes after the store chain signed contracts for the opening of new outlets in Guangdong's Jieyang and Huizhou.

Grandbuy plans to grow on a "two-legged" strategy of opening new outlets along with embarking on mergers or acquisitions.

Some industry players see the move as too rapid, but Grandbuy CEO Huang Yongzhi argues that Guangzhou's retail sector is trailing behind in its outward expansion and should quicken its pace.

Grandbuy has also signed a letter of intent for a new project at the Wenzhou Trade City in Liuzhou. The Zhanjiang store is slated for opening at the end of the year. Several other projects are under negotiation in Guangdong and other provinces.

"Outward expansion is our topmost priority," says Huang about Grandbuy's unprecedented speed of expansion. The store will realign its strategy and divide the work of expansion into eastern, western and central China regions.

Huang also discloses that his company's plan is to complete the acquisition of Guangzhou department store Xindaxin this year. He said they would not change Xindaxin's brand name and would only make some changes in brand strategy.

Guangzhou's retail sector trailing

Both the Ministry of Commerce and the industry have been worried about Grandbuy's excessively rapid expansion in these difficult times.

Huang Yongzhi disagrees. "Enterprises must expand in order to establish a firm foothold," he says. He believes that it's cheaper to expand the business, noting that the cost of opening new outlets over the past two years has been 20% cheaper compared to the two years before.

Furthermore, he expects to see a consumer boom after the financial crisis and concludes that Guangzhou's retail sector should make ready to expand into other provinces.

Brand recognition helpful

Grandbuy is not as well known as leading Beijing and Shanghai department stores outside its own province. It's not easy for department stores to venture too far afield because consumers tend to favour local brands.

There is also the pressure of soliciting business afresh. How to excel in a competitive environment is the big challenge for Grandbuy.

Department stores mainly rely on service and specialisation in their outward expansion. In Chengdu, Grandbuy chose to team up with R&F, the real estate heavyweight, to set up the anchor store in the city's first shopping mall.

The company hopes to take advantage of the tenant mix available in the Chengdu mall to boost its store offering and place greater emphasis on local demand by expanding fashion and accessories sections.

Due to the constraints of regional agency rights, Huang says managements should not insist on developing comprehensive department stores to seek expansion, as it's more profitable to operate some business models flexibly on the Mainland.

For example, Grandbuy's Chengdu store is to be a general merchandise store and will not have a department for electrical appliances or a supermarket.

from Dionne Liu, Guangzhou Office