The traditional brick-and-mortar retail sector suffered two significant setbacks last year, with both numbers of people employed and revenue growth falling significantly.

According to a report from the China Chain Store & Franchise Association, staff numbers employed by chain stores and franchises dropped 1.3 percent on 2013, while sales revenue growth was 8.8 percent, down from 11.4 percent, a direct result of ongoing pressure from online retailers.

Pei Liang, the association's secretary-general, said it was the first time that both key figures had dropped. The number of sites operated by retailers also fell, he said, by 2.3 percent, while department stores reported slower growth too.

"The data are a clear message," Pei told delegates at the China Retail Industry O2O Convention in Hangzhou. "Physical retail and chain stores are encountering a massive turning point after fast growth in recent years, into what we are calling a recession."

China's online retail industry is believed to have increased 100 percent last year.

The challenge for traditional retailers, said Pei, is how to successfully combine their physical operations with online services.

The association's figures show just 73 percent of retail and chain store operators have so far managed to launch their own WeChat accounts (the instant messaging tool developed by Tencent). And of those around 80 percent still have less than 50,000 WeChat users.

According to Kantar Worldpanel, China's more modern retail outlets, such as hyper and supermarkets, have also been feeling the online pinch, growing last year by 5.2 percent, against a 5.4 percent rise in overall fast moving consumer goods sales.

"The current retail landscape is still very fragmented, with top retailers reporting only less than a 10 percent share, and most of the key players claiming only one or two percent shares," said Jason Yu, general manager of Kantar Worldpanel China. He said as a result many are finding fewer opportunities to achieve efficiency and economy of scale.

Yu said operational costs are rising fast for retailers, especially labor, rental and marketing expenses, meaning huge numbers of companies are rushing to open online stores on platforms such as Tmall, JD or YHD, particularly to attract customers outside of top-tier cities.