Saturday, November 14, 2009

Malls are big in China’s smaller cities

Ms Mandy Jin may not know much about Singapore, but she knows about VivoCity – the gigantic 400,000 sq m mall that will open next year in her neighbourhood in north-western China.

‘Vivocity is the biggest mall in Singapore. But that one will still be much smaller than the VivoCity here,’ said the marketing executive in her 30s, a resident in Xian, the capital of Shaanxi province.

Ms Jin’s excitement about the foray of mega malls into second-tier Chinese cities like Xian reflects the wave of consumer anticipation marking the comeback of China’s retail mall boom.

Amid a nationwide effort this year to boost domestic consumption as an engine of economic growth and a growing appetite among affluent Chinese for high-end goods, malls are sprouting up not just in first-tier cities, but fanning out into the relatively smaller ones as well.

Roughly 3 million sq m of new shopping centre space may come into the market in the three top cities of Beijing, Shanghai and Guangzhou over the 12 months to June 2010.

This supply spurt is driven by an expected rise in demand from the World Expo in Shanghai and the Asian Games in Guangzhou next year, according to real estate consultant Knight Frank.

Another 2 million sq m to 3 million sq m of retail space may debut in the 10 smaller cities, dubbed ‘Tier 2′ cities, such as Xian, Chengdu, Tianjin, Chongqing, Wuhan and Hangzhou, according to back-of-the-envelope estimates by Chinese retail space analysts.

‘It is very difficult to estimate exactly how much new retail mall space is being built in the Tier 2 and 3 cities as no comprehensive data has been compiled on this. But clearly the growth will be much faster in these smaller cities, where there are previously no major malls.’ said Mr Deng Heping, spokesman for the China Shopping Mall Association in Beijing.

Despite the paucity of information on the retail space boom in second-tier cities, analysts point to the recent aggressive moves by developers to bring in snazzy, Western-style shopping complexes to meet Chinese shoppers’ more sophisticated tastes as an indication that this time, ‘the boom is for real’.

‘Developers are turning to second-tier cities because that’s where the consumer masses, who are growing in affluence, are,’ said Guangdong-based commerce professor Zheng De.

Several years ago, bullish developers bet on a shopping revolution and built malls en masse, including putting one of the largest malls in the world – the 890,000 sq m South China Mall – in the small city of Dongguan, a manufacturing hub in Guangdong.

However the mega mall, like the bumper crop of malls in the so-called first-tier major cities, soon made headlines for having everything a mall should have and more – except shoppers. Having been burnt, developers were unwilling to release more retail space unless they are assured of a steady flow of shoppers to their malls, said Prof Zheng.

The mood seems to have shifted now, he suggested, based on a rough tally of at least 27 announcements in the past few months that large shopping malls are to be built in second- and third-tier cities.

China’s retail sales will grow around 16 per cent next year as the government continues to focus on stimulating domestic consumption to support growth, the China Securities Journal recently quoted a commerce official as saying.

Foreign developers are also bullish on the China market. Tycoon Henry Sy, the Philippines’ richest man, will build an American-style SM Shopping Mall in the Chongqing municipality. He had earlier announced plans to build three malls a year in China’s second-tier cities.

Another developer looking to expand in these cities is Capitaland. In all, it has 50 malls, with five malls slated for completion next year and another 11 set to come on stream in 2011 and beyond.

Ms Jin said that the Raffles City Beijing mall ‘was a tourist attraction’ for her.

‘I may come from a second-tier city, but I’m as demanding about a beautiful ambience and shopping experience as anyone from Beijing. We need more Singapore-style and American-style malls,’ she said.


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SPENDING POWER

‘Developers are turning their attention to second-tier cities because that’s where the consumer masses – who are growing in affluence – are.’ – Guangdong-based commerce professor Zheng De

Source: Straits Times, 14 Nov 2009

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