Chinese retail landscape is changing rapidly
Print Edition
The retail landscape in China is changing in a number of ways, according to research released by international real estate services provider JLL.
Over the next three years, some 40 million square meters of shopping mall development is predicted across China. Of this, 55 new malls will be in Shanghai — a city where the retail industry has been turned on its head by the emergence of an extensive subway system. While street level stores still command the top rents, sub-terrain space has now become highly desirable, especially among the footfall hungry fast-fashion brands.
“Shanghai’s Metro system has grown amazingly quickly and newly developed malls are popping up above or close to the stations,” said Rebecca Tibbott, head of retail leasing, JLL Shanghai. “Some brands, Uniqlo for example, can command prime level one space but they’ll take a basement one if there is direct Metro access.”
Until recently, the most prominent locations in any Chinese mall were the preserve of the luxury brands but the luxury market has become saturated. This is, in part, responsible for a sizeable shift in the shopping habits of the nation.
As the profitable millennial demographic demand more choice at lower prices, international fast-fashion brands are gaining a foothold. Zara, H&M and Forever 21 are some of the Western retail stalwarts giving top tier luxury names a run for their money.
“Fast fashion retailers are still very aggressive in China and they’re all seeking prime high street space,” she said. “And to get traffic into malls, landlords need fast fashion. In some cases landlords are asking fast fashion brands and luxury retailers to sit side by side.”
Retail’s supporting role
H&M, which has around 250 stores in China, is actively seeking space for 80 new stores this year; Zara has its sights set on 60 new stores and Uniqlo plans another 100, having already opened 100 last year.
New brands are emerging as well. Forever 21 has opened nine stores and has plans for a further 50. Gap has opened 32 stores since 2013 and Banana Republic is planning to enter the market in 2016.
While standalone shopping centers stood as beacons of Chinese consumerism, “mixed-use developments” are now encouraged with malls being just one component part. In future malls, retail will supplement lifestyle, F&B and entertainment, according to JLL.
“Chinese malls traditionally average at 80,000-100,000 square meters but, for example, in Shanghai, the average retail allocation is down to just 70,000-80,000 square meters,” said Colin Dowall, head of Retail Asset Management, China. “Now when a development is proposed the government wants to monetize it and increasingly this requires making a development mixed-use and financially sustainable.”
Government influence is changing retail space in more ways than one. A clamp down on “gifting” — the practice of offering extravagant corporate favors — has curtailed luxury purchases and top-tier retailers are suffering the fallout.
“There’s been a big knock on effect on watches and jewelry especially,” Tibbott said. “Food and beverage has been affected, too.”
Before the new rules, a Chinese restaurant could have occupied 2,000 square meters’ space, but they can’t justify that these days, she added.
This changing consumer behavior has encouraged landlords to place greater emphasis on experience and concept stores. Newly developed malls are now dedicating more space to F&B.
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