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Travel News

Chinese developers: Online retail sales growth threat to physical retail malls

Written by editor

The continuing growth of online retail sales and its corresponding threat to physical retail malls appears to be the standout ‘nightmare’ for senior real estate developers in China, a new study sh

The continuing growth of online retail sales and its corresponding threat to physical retail malls appears to be the standout ‘nightmare’ for senior real estate developers in China, a new study showed. Lack of good market, demographics and consumer spend research to aid planning retail development in Tier II and III and other lower city locations, closely follow.

The report entitled “The Caffeine Report,” was commissioned by global architecture firm Broadway Malyan and conducted in March by Ipsos MORI with China-based development leaders and development-focused real estate and property professionals.

The study classified issues that bother respondents and ‘keep them awake’ at night as ‘nightmare’ and issues that they are happy with and ‘help them sleep at night’ as ‘sweet dreams.’

Among the issues that were considered ‘nightmare’ for developers were: lack of new and differentiated brands (63 percent), increasing vacancy rates in shopping malls in Tier II and III cities (63 percent), the increasing vacancy rates in shopping malls in Tier II and III cities (63 percent), the broad slowdown in the economy and drawn-out ‘soft landing’ (58 percent), and current land policies and speculation driving valuations up (42 percent).

There were other challenges mentioned, including the move towards retail-led mixed-use development (54 percent), lack of understanding about the commercialization and leasing infrastructure process (54 percent), slowing expansion plans of luxury brands (50 percent) and residential bubble as well as long-term effect on the ability of government to curb inflationary pressures across the property sector (42 percent).

There are, however, issues that are considered ‘sweet dreams’ or highly desired such as the desire and even craving on the part of customers for new, innovative and enjoyable retail experiences (88 percent), the newly appointed next-generation Central Government’s commitment to the internal market and promotion of domestic consumption (83 percent), the continued focus on China on the part of international retailers and their associated expansion plans and general long-term commitment, such as food and beverage chains (75 percent), and the increasing creation of new Central Business Zones and supporting infrastructure by Local Government and associated sustainable development opportunities (67 percent).

Other positives are the release of land by local government for urbanisation and development (46 percent) and the international growth potential of ‘brand China’ and knock-on boost in confidence for the home market (38 percent).

Respondents were also asked an open question about the common aspects of the China retail experience and evolving retail sectors in other emerging economies such as India and Brazil.

Similarities referenced include the huge potential afforded by the markets, their large populations, growing middle classes, strong desire for development and growing consumer demand, as well as the increasing economic strength, maturity and sophistication of consumers and brand awareness, and the opportunity for creativity in the face of increasing consumer expectation.

However, the uncertainties faced by major retailers considering inward investment were also mentioned as similarities, as were the disparities in consumption across regions and between cities within countries.

Differences highlighted included suggestions that China is witnessing faster increases in domestic consumption and market transparency, the country is more evolved in terms of infrastructure and transportation and benefits from greater demand for high-end and luxury goods, as well as family-centred consumption.

However, it was also suggested that faster development in China has resulted in the country seeing more substandard development, in terms of design and quality, as well as higher labour costs.

“The principal concerns resonate with many markets across the world and the emphasis placed on the threat of online shopping is evidenced in China by the recent closure and market exit of some key international brands,” said Broadway Malyan Practice Director Jeremy Salmon. “This represents a real challenge to all those in the industry and new marketing and commercial innovation is needed to reconnect income streams to real estate overheads.”

For design firms, he said emphasis should be in creating great places and engaging environments that would get people to visit the place, keep them as long as possible and inspire them to visit again.