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Retail

Taxi-hopping between Beijing’s numerous shiny new shopping centres in pursuit of foreign brand designerwear, it’s easy to forget that the Chinese capital hasn’t always been so kind to the consumer.

In the 30 years before the beginning of China’s reform and opening in the late 1970s, China was a virtual retail desert; the shopping experience was limited to the distribution of basic necessities such as food and fuel. Now, driven by confidence in a booming economy, ever-growing levels of disposable income and western-influenced psychosocial development, Chinese consumers are enthusiastically engaged in a retail frenzy that shows no sign of abating.    

Since 1978, China’s retail sector has undergone radical change. Store ownership has diversified considerably, increasing numbers of foreign retailers have been allowed to enter the country, and the majority of retail formats developed in western economies have been introduced. Every weekend, Beijingers flock to multi-tiered edifices of glass, marble and concrete spanned by countless escalators and flying walkways, enthralled by a bewildering number of brands, products and services on offer. Domestic and overseas developers have eagerly cashed in on the nationwide spending spree, investing billions in the creation of mammoth shopping centres in the capital and beyond.

China has more than 400 malls and large-scale retail spaces. Five of the world’s six largest malls are found in China, and this will be seven of ten in 2010. The world’s largest mall (soon to be exceeded) is the South China Mall in Dongguan, Guangzhou Province. With a mind-boggling shopping space of over seven million square feet, it is nearly twice the size of the Pentagon, the world’s largest office building. In contrast, large retail space construction in the US is steadily declining, to just 8 projects for 2004–06 from 35 major projects at the turn of the 21st century, and some malls are closing down.

David Hand, managing director of the Beijing office of Jones Lang La LaSalle, one of the world’s largest commercial real estate service companies, attributes the boom in Beijing mall-building to a number of factors. “Obviously rising incomes and increased consumer spending are major drivers. Increased access to mass communication has meant the Chinese people now know far more about western lifestyles, and this has served to heighten their aspirations in terms of material possessions and the desire to express their individuality. Deregulation of the Chinese property market has also made it easier for foreign developers to operate here.”

It’s easy to see the attraction of China for western developers, as the supply of suitable sites in the West dries up. Consider the escalating figures. The growing Chinese middle class now numbers over 100 million, with household incomes in this bracket increasing annually by 12 percent–15 percent. The proportion of urban dwellers in China has grown from less than 20 percent in 1980 to more than 40 percent today; it will reach 60 percent by 2030. China’s gross domestic product grew by about 9 percent in 2005, with a similar figure predicted this year. According to the Beijing Statistics Bureau, China’s retail sales in August rose to 607.7 billion yuan (US$76 billion), with total sales for 2006 expected to top 7.5 trillion yuan (US$937 billion), up an extremely healthy 13 percent on 2005.

The gradual relaxation of governmental controls over the retail sector has meant that more Chinese stores and malls are being run by non-Chinese mainland Chinese and foreigners. In the past, many mainland stores failed to establish clear identities because of the parochial influence of political appointees. Poor designs by some Chinese architects funnelled confused shoppers into dead ends and created retail areas that only Indiana Jones could reach. Nowadays, a growing number of renowned foreign architects are being employed to add prestige and to apply their conceptual skills to high-end, high-tech construction projects, which in Beijing often integrate retail spaces, offices and luxury apartments in one, multipurpose design.

The growing number of foreign developers trying their hand in Beijing, and across China, and the emergence of international retailers and brands on the Chinese market has been increasingly marked in recent years. The World Trade Organization (WTO)-inspired total opening up of the Chinese retail sector in January 2005 gave fresh impetus to the influx, and this has driven up demand for retail properties in both Beijing’s core and non-core shopping areas. Limits on retail outlet numbers, rules confining foreign retailers to large cities, and regulations capping foreign companies’ stakes in local ventures at 65 percent vanished.

Bulgari, Ferragamo, IKEA, B&Q, Wal-Mart, Ito-Yokado, Carrefour and Costco are becoming household names to the ever more brand-savvy Chinese consumer. Richard Wang is an executive general manager at Gulfland Property Development, who are responsible for construction of “The Gate”, a 120,000-square-metre mixed development in the so-called “West CBD” area of Zhongguancun. He comments, “We wanted to create a destination, not just a building. All the tenants in our retail space were carefully chosen to reflect the fashionable, youthful, brand-conscious and lifestyle-oriented nature of our target consumers.”

As is sometimes the way in China, inadequate planning and control has meant the rapid growth of outsized retail spaces is far from being problem-free. Although the government is tightening up laws on retail real estate, regulating the current development tide is an almost impossible task. David Hand said, “In my view only 10 or 20 percent of these new spaces will realize their true profit potential. Poor management, poor locations, poor design, poor choice of tenants and the fact that theses places are just too big are all contributing factors. When the market becomes saturated, the poor performers will naturally find themselves squeezed out.”

Richard Middleton, managing director (China) of Cushman & Wakefield, a direct competitor of Jones Lang LaSalle in Beijing, is a little more upbeat. “I think we have seen a very positive trend in the Chinese retail estate market over the last six months. Some of the best Chinese developers now understand the importance of getting retail management right. Even in a mixed space, a successful retail zone sets the tone for the whole project. An increasing number of Chinese developers are looking to enter into joint ventures with western companies to benefit from increased capital and expertise.”

Cushman & Wakefield are the leasing agent for LG Twins Mall, a recently completed upmarket development on Jianguomenwai Dajie that targets hip executive businesswomen.      

So, what does the future hold?

Paradoxically, more Chinese are visiting western-styled retail spaces to buy western brand-name products that are actually manufactured in their own country. In the US, although many citizens can’t afford decent healthcare or higher education, with an extra job or two they can still shop for Chinese-made goods. The retail therapy tool is being employed by government on both sides of the Pacific as an effective means of keeping the masses both focused and assuaged.

It’s not just a case of what Chinese consumers will or won’t buy; it’s a matter also of why they’re buying the products that they do. Inextricably linked to China’s rising gross domestic product and improved standard of living has been the increasing number of Chinese with personal goals of self-satisfaction and self-expression. Instead of worrying about the taste (or availability) of the next meal, the increasingly affluent Chinese worker is preoccupied with the taste of life itself, and self-satisfaction is now a primary motivator in cities like Beijing, Guangzhou and Shanghai. The increasingly selective and street-smart Chinese consumer is neither complacent nor compliant, and rapid change has become the norm. For retailers and developers alike, profitable times may lie ahead, but there’s still potential for miscalculation. One thing’s for sure: Retail spaces in China are going to get bigger and bolder; only time will tell if it’s going to get better.