10 trends to shape retail market in 2014
Print Edition
CUSHMAN & Wakefield, the world’s largest privately held real estate services company, has recently highlighted 10 ongoing trends that will shape China’s retail property market this year.
“China’s retail sector is one of the most compelling markets in the world and will continue to remain so for decades to come,” said James Hawkey, managing director of retail services for Asia Pacific at Cushman & Wakefield. “It is changing daily, maturing at an exponential rate, with greater geographic scope, larger demographic reach, and a deeper physical and virtual architecture.”
1. E-commerce surging ahead
Strong Internet and mobile penetration and the low cost of delivery in China have helped fuel the rapid expansion of online retailing. Brick-and-mortar retailers are feeling pressure. But e-commerce is seen by retailers as something to embrace. So-called “click and collect” services are gaining traction in the US and booming in Europe. Similar trends, but with a local twist, seem likely in China.
2. Department stores under pressure
With rapid expansion by major operators, sales for department stores have been falling since 2012 and for some operators have gone negative. The influence of the department store will fade in the coming two to three years as shopping centers continue their ascent. Successful department stores will either rely on great locations and history, look more like shopping centers creating spaces for fashion anchors, or become more specialist.
3. Expansion strategies are getting less aggressive
International retailers have been expanding in China for over 10 years. Luxury retailers entered the market relatively early and saw a boom in 2011 and 2012, slowing significantly in 2013. Fast fashion brands entered rather late in 2006-2007 and their expansion has accelerated. Fast fashion are designs that move from catwalk to market quickly. Fast fashion has the potential to go deep into China’s cities.
4. Potential for oversupply
The potential for oversupply looms in many major cities though the fundamentals of demand are good — hundreds of millions of new urban residents, a rapidly growing middle class and strong growth in retail sales. This year will see a peak of new supply with over 20 million square meters, while delivery in 2015 is also anticipated at high levels with around 18 million square meters expected.
5. Polarization
In the face of oversupply we will see increasing polarization. Rents in the prime streets and prime malls will rise. To succeed in a competitive market, a new shopping center needs a good city center location, or a well-connected suburban location without overwhelming competition. Experienced developers are far more likely to pick the right sites and use an experienced retail architect to design something attractive.
6. Food glorious food
Food has always been a major part of Chinese culture, and a significant element in China’s malls. Now that role is becoming more important still. While in some sectors retailers’ expansion is slowing, the food and beverage sector is moving confidently.
7. The mega-mall boom continues
Approximately 150 new malls opened in major mainland cities last year, many with an average floor area of 80,000 square meters or more, making China by far the world leader in mall construction. Global experience of mega-malls shows that lots have problems such as vacancy.
8. Chinese consumers are maturing and getting savvier
In the luxury market consumers are more confident to express their likes and dislikes, and develop their own style. Now the more sophisticated Chinese consumer is behaving very like other international consumers.
9. Lifestyle products and mall positioning
Brands geared more toward lifestyle now have the confidence to enter the China market. Similarly, a number of recent mall concepts have increased their emphasis on lifestyle, including K11 and Kerry Parkside in Shanghai.
10. Government will begin to rethink land use strategy
Given the potential for oversupply of retail property, and the likelihood of a number of high-profile retail project failures in the coming two years, the government may begin to rethink its planning strategy.
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