Wholesale commodities markets have gone from being friends to foes of department stores in Zhengzhou, as they make inroads into the shops' business. Some department stores have even reported a double-digit percentage decline in sales. 'In the old days the development of various types of wholesale markets had drawn big crowds and provided a steady influx of patrons to department stores here,' said Liu Chensheng , deputy general manager of the state-owned Zhengzhou Hualian Commercial Building. 'Today, they have also moved into the retail business and have an advantage over us by selling at a wholesale price,' he said, citing the example of a clothing wholesale market. Specialised shops, such as those opened by household electrical appliance producers Chunlan and Kelon, and also supermarkets, have started to appear in the city and sell at, or close to, factory prices. The trend started to surface in the second half of last year with the city's sales growth slackening, compared with an annual 15 per cent to 16 per cent rise in previous years. The effect became obvious for Hualian, which posted a 30 per cent plunge in sales to 150 million yuan (about HK$140 million) in the first five months of the year. The same held true even for the peak season, the Lunar New Year in February, when the company saw sales drop by 10 million yuan to 32 million yuan. For some retailers, the phenomenon has partly reflected the after-effects of over-competition at the beginning of the decade. Four shopping arcades started to take shape around Erqi Square in Zhengzhou following the city government's decision to give emphasis to the development of its retail sector after paramount leader Deng Xiaoping's visit to the city in 1986. Competition has long been keen on all fronts, as more retailers entered the market. 'The fierce competition has forced us to sell for less money from the very beginning,' Mr Liu said. Leading department store Zhengzhou Asia Group has employed gimmicks such as parades and flag-raising ceremonies to woo customers and it has been closely followed by competitors. There are live broadcasts on the sales floor in conjunction with the local radio station, telephone shopping, an interactive touch-screen display of the store's floor plan and a play area for kids. Lucky draws have been popular for the Asia group. At first the main prize was worth 5,000 yuan, but it spiralled higher until reaching a peak in 1991 - a 300,000 yuan Audi sedan car - as many department stores were trying to outdo each other, Mr Liu said. Under intense pressure to cut prices and promote lucky draws, Hualian posted a drop of two percentage points in gross profit margin to 16 per cent. But Mr Liu said profits were increasing by that time as an influx of customers from neighbouring cities had helped to lift turnover. However, the growth in retail sales has been hit by the introduction of economic austerity measures and the central government's move in 1993 to cap the value of prizes offered in lucky draws to 5,000 yuan. Housing reform is also said to have put a dampener on consumer spending as people save money to buy their own homes. Mr Liu said the outlook for the retail market was poor as 70 per cent of the city's workers could take home only 70 per cent of their salary. This was because textiles, one of the city's pillar industries, was going through a tough time. Although the cloud hanging over the retail sector has not cleared, more shopping centres are joining the fray. The number of big shopping arcades is to increase from five to eight. 'Zhengzhou recorded flat growth in retail sales last year and we may see negative growth this year. Profit margins are going to be squeezed and we are trying our best to consolidate our position,' Mr Liu said. Zhengzhou Asia Group, which is known for its ambitious marketing strategies, had also felt the heat from wholesale markets and specialised shops. Asia's department store director Li Hongwei , said that coupled with a more sluggish sentiment, the Zhengzhou department store only recorded a flat growth in sales of 170 million yuan for the first five months this year. The group is having to upgrade its product lines to ensure it keeps its market share amid cutthroat competition. Zhengzhou retailers can only pin their hopes on moves to develop the city as a commercial and trading hub to again bring sales to new heights.