BEIJING - Changing consumer preferences have created challenges as well as opportunities for China's retail sector, a recent report points out.

Department stores and high-street shops are loosing customers, who seem to be moving more toward shopping malls and online-market places, according a report by international rating agency Fitch.

Fitch expects the rapid change in the retail environment will increase competition, thereby, traditional retailers will suffer.

Retail sales for the top 50 domestic retailers declined by 1.9 percent year on year in the first nine months of 2016, according to China National Business Information Center.

There are select categories that still have the potential to grow, such as sporting goods as Chinese are more savvy about their health and the government rolls out supportive policies, according to the Fitch report.

It says that differentiation is important even within new shopping formats.

As Fung Business Intelligence points out, shopping malls offer the customer "experiential shopping," which connects the customer to food and beverage offerings, lifestyle and entertainment options; and links the online-to-offline (O2O) shopping experience.

China's cabinet, the State Council, issued a document on Friday to help high-street retailers, encouraging them to work with e-commerce platforms and seek other business model innovation.

Chinese online retailers saw record sales on Friday's Singles' Day shopping event, and many offline stores also jumped on the bandwagon.

Suning.com, once a home appliance store giant, reported record-high offline sales on Friday thanks to its online promotions.