alled the simultaneous deterioration across all four metrics “severe”.  Only 22.2 per cent of surveyed enterprises grew net profit, compared with 32 per cent that grew revenues. That gap represents a cohort of companies that held their top line while watching the bottom line fall out. They kept the lights on, ran promotions and threw money at footfall. Then their margins went anyway. Nearly one in ten operators saw profits fall by more than 30 per cent. This is happening against a macroeconomic backdrop that, by any reasonable standard, is fine. China’s GDP grew 5 per cent in 2025, with retail sales crossing RMB 50 trillion. Sports goods grew 15.7 per cent. Gold and jewellery reversed a prior-year decline. Department stores, by contrast, grew retail sales by 0.1 per cent.  Part II: The model that ate itself To understand why department stores are where they are, you have to understand what made them successful and why that success became a trap. The concession-and-subleasing model was prominent in the industry’s golden era from the 1990s onwards. Operators leased floor space to brand concessionaires and collected commissions. Capital requirements were minimal. Expansion was fast. When consumer demand was growing, and quality retail space was scarce, operators had all the leverage they needed. The problem is what the model failed to build. Because operators were collecting rent rather than running retail, they never developed supply chain capabilities, buyer expertise, or merchandise curation. They knew how to manage tenants. They did not know how to sell things. When e-commerce arrived, this hollowness was exposed. Nearly half of operators now admit their product offerings are weak and uncompetitive. Another 44 per cent say their in-store experience fails to retain customers.  Part III: Not just e-commerce While the standard narrative about what is killing department stores places e-commerce at the centre, online retail as a share of total physical goods sales has actually been declining for three consecutive years, down to 26.1 per cent in 2025 from a peak of 27.6 per cent in 2023. The traffic haemorrhage from physical retail to platforms is not accelerating. In some sense, the acute phase of that disruption is over.  Instant retail has settled into daily urban consumer habits. Simultaneously, many brands now see direct-to-consumer sales exceeding 50 per cent of total revenue, using livestreaming and private-domain operations to own customer relationships directly. For department stores, brands are simultaneously pulling customers away from the store floor and negotiating for growing commercial strength. Then there is the threat the industry inflicted on itself: format homogeneity at scale. Walk into a mid-market department store in Wuhan, then one in Chengdu. Same brands, same layouts, same merchandise, similar prices. Consumers noticed. Operators trying to solve the footfall problem with deeper discounting are treating the symptom while ignoring all three underlying causes. Part IV: The digital illusion There is a particular kind of digital transformation that many Chinese department stores have undergone. WeChat Mini Program stores: 93.8 per cent of surveyed operators have them. Livestreaming channels: 89.6 per cent. Douyin and WeChat presence: over 90 per cent. By surface measure, the industry has embraced digital operations. Then look underneath. Only 15 per cent of enterprises have fully integrated membership data across all formats and platforms. Nearly half have no co-membership arrangements with the brands inside their own stores. A loyal customer who visits the in-store cosmetics counter and later orders from the brand’s own app registers as two entirely different people in two separate data environments. The loyalty system cannot even see them. On artificial intelligence, the gap between recognition and reality is sharp. More than 76 per cent of operators believe AI will have a transformative impact on retail. Nearly 42 per cent have deployed nothing. Among those that have, adoption is entirely front-end: marketing content generation, customer service chatbots. Intelligent replenishment, dynamic pricing, supply chain optimisation, all below 10 per cent adoption. Operators are using AI to write promotional copy while running inventory and procurement on gut feel. Nearly 80 per cent spend less than 1 per cent of revenue on digital transformation. Among global retailers successfully navigating this transition, that figure runs three to five times higher. Part V: Who survives The report’s 2026 outlook is cautious stabilisation. More than 40 per cent of operators expect sales growth; another 40 per cent expect flat performance. The acute anxiety about a severe decline has eased. That is the good news, and it is modest. At the top, luxury anchors like Beijing SKP and Nanjing Deji Plaza operate in a different business, controlling scarce brand relationships, national flagship stores, Asian exclusives and serving customers whose wealth insulates them from macroeconomic anxiety. Their moat took decades to build, and most of the market cannot replicate it. In the middle, the operators building genuine futures have accepted that they are no longer in the goods-selling business. Shanghai Jiuguang Centre, Wushang Mall, and Guangzhou Teem Plaza ran hundreds of cultural events and IP activations through 2025, restructuring space around dwell time rather than transaction volume. The footfall comparison is the sharpest data point in the report: 64.4 per cent of shopping centres saw footfall grow in 2025, compared with 45.4 per cent of standalone department stores. The difference between those two groups is format complexity and the willingness to sacrifice retail floor space for genuine experiential programming. The physical infrastructure exists. The customer habit of visiting physical retail, battered as it is, has not disappeared. What the industry has never convincingly answered is the question underneath all the operational detail: when someone has a phone and can buy anything, get it delivered in an hour, and never interact with another human being, what is compelling enough to make them put on shoes and go instead? Until operators answer that with something more specific than “experience” and then build an environment that actually delivers it, the floor will keep sinking. Further reading: What’s driving the transformation of China’s department stores?