Consumers who did not have many choices available perceived department stores as convenient and one-stop outlets and, most importantly, the stores offered a degree of quality.

Finally, they served as perfect destination for family weekend outings.

Nowadays, they are losing customers in droves to well-lit and well-designed fashion boutiques, foreign chains such as Giordano and, more recently, foreign super-stores such as the French Carrefour.

Competition among the mainland stores also is heating up.

For instance, there were only four large department stores in Beijing in the 1980s. Now the city has more than 60 big stores, with 17 more due to open for business later this year.

Zheng Wanhe, general manager of Beijing Wangfujing - China's most profitable department store operator - summed up the prevailing feeling of the state-controlled department store operators: 'The mainland retailing industry is at a crossroads. If we don't expand quickly, we are out.' The result is its plan to team up with Hong Kong-listed red chip Silver Grant International Industries to spend more than 2.5 billion yuan (about HK$2.3 billion) in opening at least 20 full-line and modern department stores throughout China by the turn of the century.

To achieve its aim of becoming China's 'Marks & Spencer', the joint venture - Beijing Wangfujing Retail Management Co - has retained McKinsey & Co to produce an operational strategy, and Anderson Consulting to design an information technology project covering the functions of planning, report analysis, stock, pricing and financial management.

Principal at McKinsey & Co's Hong Kong office, Javier Perez, said that if the project was successful it could well provide a model for other state-controlled department stores which were struggling with falling sales and a drop in the number of customers.

He said that despite the difficulties, large department stores were still the main outlets for retail sales and China's 7,000 stores accounted for about 35 per cent of durables and clothing sales.

But Mr Perez said the problem was stores were highly fragmented, with most of them individually owned, which meant there was no national chain with uniform service standards.

For instance, China's top 200 local retailers account for 32 per cent of department store sales nationwide.

In the West, the figure is much higher.

Another problem is most of the stores lack effective merchandise management and they do not have clear market position, targeting of customers or price point strategy.

'Those are the keys to sustain attractive returns,' he said.

Todd Andersen, executive vice-president of Beijing Wangfujing Retail Management, agreed.

'In the past, building big stores filled with merchandise was already the successful formula,' he said.

'Now customers have become more sophisticated and differentiation is the key to success.' As a result, Mr Andersen said Beijing Wangfujing had to work out plans to alter its position in the mass market, its merchandising strategy and also its store design.

He said the Wangfujing stores would target the country's booming middle-class customers, aged between 25 and 40 and with monthly incomes of between 1,500 yuan and 2,500 yuan.

He said about 60-70 per cent of the group's products would be in the middle price tier, with the remainder spread across the high and low ranges.

'Our idea is that our stores will provide something for somebody, unlike other mainland stores which are always trying to offer everything for everybody,' he said.