The epidemic has not changed the long-term recovery trend over and over again. High-end department stores are growing strongly, and mid-tier department stores are seeking transformation
Since 2022, the epidemic has continued repeatedly. The short-term impact on offline operations and online sales subject to logistics control has had varying degrees of impact. However, the city's adaptability to the outbreak of the epidemic has increased, recovery time after the epidemic has been shortened, and the overall passenger flow recovery index has shown an upward trend. The medium- to long-term trend is improving. The total number of 2022Q1 societies nationwide is 1,087 billion yuan (+3.3%). The performance of department stores and shopping malls in different positions has changed during the pandemic: (1) High-end department stores: The pandemic has become a short-term accelerator for the return of consumption, and the combination of consumption upgrades has driven up their performance. According to statistics from Lianshang Network and Business Think Tank, SKP's sales in Beijing were close to 24 billion yuan (+35%) in 2021; sales of Nanjing D&G Plaza exceeded 20 billion yuan (+28%). Mid-tier department stores: Under the impact of the epidemic, competitive pressure brought about by factors such as product homogenization and business site control has intensified. As a result, two paths can be seen in some commercial entities to find a way out. The first is to increase the online layout to broaden sales channels; the second is to accelerate the transformation of department stores into diversified commercial entities to seek new growth brought about by non-standard products and services such as catering and entertainment.
Reforms and upgrades dig deeper into the value of the retail sector, and expand the brand matrix+regional market volume: the company's retail business is mainly based on the commercial+real estate model. On the one hand, it reduces operating costs through its own properties, and on the other hand, provides continuous cash flow through retail business, and drives traffic to surrounding business districts to increase property value and achieve complementary advantages. At the same time, the company has replicated the model and expanded its business layout. By the end of 2021, the company had set up 22 stores in Southwest China, South China, East China and North China markets. As the scale expanded, the company divested its real estate development business and dug deeper into the value of the retail sector. Quality: The company's stores continue to enhance competitiveness and enhance consumer stickiness through brand and category optimization, building an efficient supply chain, developing self-procurement and operation, adjusting product portfolio layout, and expanding online channels. At the same time, they have created “People's Shopping Mall”, “Maoye Department Store”, “Maoye Tiandi”, “Renhe Spring”, “Victoria” and other brand matrices targeting different community, middle and high-end customer groups to expand consumer coverage and increase passenger traffic.
Expanding the hotel business with Marriott's brand advantages and delegated management empowerment, Marriott Hotels is the world's largest hotel group. It has outstanding brand strength and empowers hotel development and operation through a entrusted management model. The company's layout of JW Marriott is positioned as a luxury hotel and resort. In the context of consumption upgrades and the return of high-end vacation consumption catalyzed by the pandemic, high-end resorts have ushered in new development opportunities. The company's layout of JW Marriott Hotel has an excellent location and is expected to achieve steady growth through the potential and management empowerment of the Marriott brand.
Investment advice
In the short term, in the context of the continued return of high-end consumption, high-end department stores such as “Renhe Spring” and “Victoria” are expected to continue to enjoy dividends; in the medium to long term, in the context of younger consumption and consumption upgrades, the company is expected to continue to improve floor efficiency and promote the continued growth of high-end, middle and high-end department stores. We expect the company's EPS from 2022 to 2024 to be 0.24, 0.27, and 0.29 yuan/share, respectively, corresponding to the current stock price of PE 15, 14, and 12 times, respectively. First coverage, giving a “buy” rating.
Risk warning
The epidemic has been repeated in some regions; consumption upgrades have fallen short of expectations; transformation has fallen short of expectations.