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Retail sales to rise but malls still face challenges
By Cherry Cao

CHINA'S retail sales are likely to see healthier growth in the second half of this year, following a slowdown in late 2012, according to Jones Lang LaSalle, a leading international real estate services provider.

But shopping malls, with record new supply coming into stream, will continue to face challenges in adjusting to more competition, the growth in e-commerce and other factors. They are already adjusting their tenant mix to include more food and beverage, entertainment and services like early education that cannot go online.

"The slowdown of consumer sales we saw last year seems to be receding, and we expect confidence to pick up," said Steven McCord, local director of China retail research at Jones Lang LaSalle Shanghai.

Policymakers are serious about promoting consumerism in economic growth and this should have a positive impact, he said.

Moreover, after the slowdown in 2012, retailers are more cautious and will analyze individual Chinese markets more carefully and follow a bottom-line driven strategy rather than investing in brand exposure, according to Eugene Tang, head of retail for Jones Lang LaSalle's China operation. This approach may also facilitate healthier growth in the second half of 2013 and 2014, he said.

Abundant supply of mall space poses a major challenge.

The number of new malls in China this year is likely to reach a record, with around 150 malls opening in the top 20 markets, according to Jones Lang LaSalle. The company's research shows that size is also increasing. The average size of a new mall will exceed 80,000 square meters. In Shanghai, for example, Global Harbour in Putuo District will offer 320,000 square meters, with shop space of 40,000-50,000 square meters per floor.

As much as 3 million square meters of new retail space is likely to be added in Shanghai in the next three years, and maybe 3-4 million square meters in Chengdu, Tang said. Emerging cities such as Jinan, Hefei, Kunming and Changzhou, are also adding large areas of retail real estate. This trend is likely to continue in third- and fourth-tier cities in the next few years.

The competition to attract high-caliber retailers is fierce. Managers are under pressure to differentiate their properties in design and traffic flow, tenant mix, theme, customer base and market positioning.

The growth of e-commerce does not mean the end of the shopping mall in China but it limits opportunities in the mass retail market. This is especially true in the weakly branded brick-and-mortar fashion segment where price-sensitive consumers buy online at lower prices.

Thus, mall operators are increasing non-traditional elements, including movie theaters, games arcades, karaoke and weight-loss clinics. In the decentralized Shanghai market, these elements have increased from an average of 30 percent to 33 percent of occupied space in two years. In new shopping centers, they can account for as much as 45 percent of store space.

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