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2013-07-09

How important is a retail mall strategy in China?
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Although the economy has slowed, mall growth has been faster than ever relying on consumers picking up the slack.

The number of new shopping malls in China is expected to nearly double to a record high this year as developers bet on consumers picking up the slack in the world’s second largest economy, says property services firm Jones Lang LaSalle.

The number of new shopping malls built in China’s top 20 cities is forecast to jump to 150 this year, compared to 80 in 2012 – that’s an almost 88 percent increase, Jones Lang LaSalle said.

The firm also expects the average mall size to increase from 710,418 square feet in 2005 to now exceed over 947,224 square feet.

News of a record number of malls opening in China this year comes amid signs of a pronounced slowdown in the economy. The Asian giant’s economy grew at its slowest pace for 13 years in 2012 and some economists are predicting that the country could miss its growth target of 7.5 percent this year, citing the government’s tolerance for slower growth amid implementing structural reforms.

Retail sales, however, have shown signs of a revival after slowing in the latter part of 2012 and early this year. In May, retail sales grew 12.9 percent from a year earlier at around the same pace as April – in line with expectations and still showing double digit growth.

Retail sales results should pick up in the second half of 2013 and next year, according to Steven McCord, local director, China retail research at Jones Lang LaSalle.

“The slowdown we saw last year seems to be receding, and we expect confidence to pick up,” McCord said. “Policymakers are serious about promoting consumerism to play a stronger part in overall economic growth, and this should have a positive impact.”

China’s new leaders have voiced plans to implement reforms in the economy to create more sustainable growth as it transitions away from investment led-growth to a more consumption based one.

Concerns that the increase of new malls will lead to saturation in China’s retail space are unlikely anytime soon as urbanization is still leading to rapidly expanding cities, McCord said.

“They’re [developers are] building to meet current demand as well as building a little bit ahead of demand, because across China you have cities that are expanding rapidly,” McCord said.

“We look at a place like Wuhan for example in central China, it is the only significant retail market in its entire province, so people that live in the smaller cities and towns around the province don’t have much choice of retail goods and need to travel a few hours to their nearest big city to get the full selection,” he added.

Our Thoughts

With a staggering number of new mall development in the works, a lot is relying on Chinese consumers to get out and spend. For many established markets in the world it’s still hard to comprehend the level of opportunity still left untapped in China.

The sophistication and size of many of these new mall monstrosities are truly works of art. They’re really premium destinations and lifestyle experiences geared at attracting a massive amount of consumers to support their retail innards.

For retail chains operating in China, whether they are food and beverage or apparel in variety, knowing how to determine the right malls, in the right cities, and in the right trade zones is key to success.

Data-driven analyses and spatial tools can help retailers discover opportunities that may have slipped under the radar. Retailers with local teams in China can benefit from an objective viewpoint by which to help validate local knowledge and make better market planning decisions.