Shopping malls: It’s all about being different
Print Edition
The meteoric rise of China’s online retailers such as Alibaba and JD.com has attracted much discussion among investors, commentators and shoppers alike.
The success of these Internet-based businesses has prompted talk about the impending demise of the traditional shopping mall. However, suggestions of the e-commerce revolution prompting brick and mortar retailers to turn their backs on shopping malls for good, does not to appear to have deterred developers from investing in new projects.
In 2014, a further 300 shopping malls opened in China’s mainland, taking the total number in existence to around 1,700. Another 700 are under construction and due for completion in the next three years; roughly three quarters of which are in tier 2 and below cities.
Shopping malls aim to offer a more modern and effective shopping experience to consumers with around half of them less than three years old and many now owned or operated by leading international players. In recent times, the shopping mall has been successful in taking market share from other offline channels, most notably department stores; many of whom saw like-for-like store sales decline in 2014.
Despite gains against other offline locations, the 25 percent annual growth in shopping mall capacity significantly outstripped overall growth in the retail market (11 percent) last year.
This raises inevitable questions about the sustainability of the growth in shopping mall capacity and the potential risk of countless shopping units standing empty in newly built shopping malls throughout China.
How to stand out from the crowd
Notwithstanding the threat from online retailers, many shopping mall operators are struggling to differentiate themselves from other nearby competitors as the battle to entice consumers and their wallets intensifies.
Faced with these different challenges, the developers and operators of shopping malls need to review their current approach to ensure that they stand out from the crowd.
Firstly, malls will need to adapt to attract and retain consumers.
The retail sector has long understood the benefits of “owning the consumers” and building loyalty through reward schemes. To remain competitive, shopping malls must become more adept at targeting customers, mimicking the established practices of their retail tenants through mall-wide loyalty cards and promotional offerings.
The larger mall chains are well-placed to gain the most from these schemes as development costs can be spread easily over multiple locations.
Secondly, with the smartphone now an essential part of any consumer’s offline, as well as online, shopping experience, targeted online-to-offline (O20) marketing will become a major trend.
The recent joint venture between Wanda Group, Baidu and Tencent is recognition of the growing importance of O2O commerce by one of China’s biggest mall developers, and likely to be the first in a series of strategic partnerships of this kind to cater for the multi-channel consumer.
Thirdly, many competing shopping malls offer similar retail and food and beverage outlets making it harder for them to offer a unique shopping experience. This presents an opportunity for mall operators through semi-exclusive partnerships with selected brands.
Flagship stores within malls will no longer be just the preserve of fashion brands as malls and retailers look to forge more exclusive link-ups with destination retailers.
Finally, a trend over the last few years which is set to evolve, is a greater focus on leisure and entertainment as malls look to broaden their offer to consumers beyond traditional retail. Until now this has meant more restaurants, bars and cinemas appearing within shopping complexes, but we can expect these extra amenities to expand to include spas and kids’ clubs in the near future.
With such a high number of malls being built, the retail landscape in China, especially in higher tier cities, is becoming more complicated.
In certain cities and areas, oversupply of physical retail space means not all shopping malls will be successful.
The challenge for existing and new shopping malls will be to differentiate themselves from the competition, providing a distinct proposition for current and prospective retail tenants and, in turn, enhancing the overall shopping experience for consumers.
If they fail to do so, developers and operators risk being left with nothing more than bricks and mortar.
The author is a partner of OC&C Strategy Consultants, China.
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