Traditional retailing is facing headwinds on the mainland, given the current lukewarm consumer sentiment and erosion from e-commerce giants, and the industry's future is with online, a leading hypermarket operator said on Monday.

"In terms of consumer sentiment and retail sales, this year is not going to be better than 2014," warned Bruno Mercier, chief executive officer of Sun Art Retail Group Ltd.

The company, which commands a 14-percent market share, is the largest hypermarket operator on the mainland.

Mercier called the existing business environment "challenging". While GDP growth decelerated to 7.4 percent last year, the growth of total retail sales on the mainland fell to 12 percent from 13.1 percent in 2013. The consumer price index also fell, dropping to 0.8 in January this year, with food prices hit a three-year-low of 1.1.

While a booming urban population and rising disposable income for city dwellers are positive for the retail sector, rising labor costs and rents are piling pressure on hypermarkets, said Jean-Patrick Paufichet, Sun Art's chief financial officer.

"E-commerce has enjoyed most of the growth in the retail sector. But we're very lucky to be part of the game. The future of retail is with online," said Huang Mingtuan, executive director of the group.

Feiniu.com - Sun Art's online flagship store - recorded more than 6,000 daily orders this January, over 10 times compared with the same period last year, while orders from mobile devices accounted for 30 to 40 percent, "which is in par with major online retailers such as JD.com and Tmall," Huang said.

Launched in January 2014, Feiniu.com now covers Jiangsu, Zhejiang and Anhui provinces as well as Shanghai. "We'll extend it to the whole country within a year," he added.

While Feiniu.com's gross merchandise value reached 150 million yuan ($23.9 million) last year, Huang estimated it would exceed 10 billion yuan in two to three years. "We expect to break even in five years and surpass the traditional business in the future."

Sun Art reported 6.6-percent on-year growth on a turnover to 91.9 billion yuan in 2014. The company's net profit picked up 4.8 percent compared with a year ago to 2.9 billion yuan. The increase is attributable to the opening of new stores, according to its annual report published on Sunday.

A total of 49 new stores were launched in 2014, compared with 50 a year ago. By end of last year, Sun Art operated 372 hypermarkets in 26 provinces across the mainland. It has also secured 162 sites for more stores in the next three years, of which 116 were under construction, the report said.

"In terms of expansion, we'll keep the current pace - 50 to 60 new stores per year," said Huang. "By far, we don't have any store-trimming plan."

However, the annual report shows 1.6 percent decline in same-store sales last year, compared with a 2-percent increase in 2013. Its net profit margin also edged down by 0.1 percentage point to 3.3 percent in 2014.

"This is due to the decline in sales of electronic goods, pre-paid cards and the loss of Feiniu," said Paufichet. More consumers are purchasing computers and television sets online, he said. But the trend has a limited impact "because margin of electronics is usually lower than average".

emmadai@chinadailyhk.com

Traditional hypermarkets on the mainland are facing a continuous challenge from online retailers, which have enjoyed most of the growth in the retail sector. Ariana Lindquist / Bloomberg NEWS

(HK Edition 03/03/2015 page8)