shopping centers malls

Chinese Shopping Malls

An Interview with Mr. Steven Beesley, FISCM

Some of the largest shopping malls in the world can now be found in China and more large malls appear to be on the way in that nation of 1.3 billion people. Mr. Steven Beesley, a resident of Hong Kong, answers some of the most asked questions about Chinese shopping malls.

Steven Beesley is a Senior Manager in charge of Asset Management Services with a large firm of property consultants and managers whose principals are based in London but have many offices spanning across the globe. He is based in Hong Kong and has been involved with property and facilities management for over 26 years and has extensive experience and knowledge of the local market. He currently looks after a mixed portfolio of commercial, industrial and very up market residential properties. He is also a licensed estate agent with the Estate Agents Authority in Hong Kong.

Beesley is Co-founder, Fellow, Director and Treasurer of the Institute of Shopping Centre Management Limited based in Hong Kong, which has members involved with the marketing, leasing and management of shopping centres in Hong Kong, China and South East Asia. Members also include academics from the local universities and tertiary institutions.

You may contact him at contactus@iscm.org.hk and the Institute of Shopping Centre Management web site is http://www.iscm.org.hk.

1. Why are the Chinese building malls on such a grand scale?

They can build on a large scale because there is plenty of inexpensive land, and building and labor costs are low. Residential and commercial projects in China are also built on equally grand scales. The largest Chinese golf club, for example, comprises of 10 international standard 18-hole golf courses built side by side—currently the largest golf club in the world. Only in China!

2. Are smaller malls also being built in China?

Not really, due to above reasons.

3. Who is investing in Chinese shopping malls?

It really is a mixed bag. Investment capital comes from Hong Kong developers, like Sun Hung Kai, Cheung Kong, and Sino, Shui On, joint ventures and foreign venture capital from fund managers, but mainly involvement is tied in with local government. Such activity is confined mainly at present to coastal cities, including Shenzhen, Guangzhou, and Shanghai, as well as Beijing.

4. Are there opportunities for foreign investment in Chinese shopping malls?

Most certainly, but investors must be cautious where and when they invest. Careful analysis of local needs, the surrounding population, expected clientele, supporting infrastructure, land cost, construction costs, labor costs and projections on income versus expenditure are all needed. In many areas the infrastructure (roads, telecommunications, power, water, sewage, railways, and so on) is not fully completed in fringe areas and the surrounding population does not have a minimum supporting threshold big enough to sustain large shopping malls. The best opportunities lie in the central business districts of the large coastal cities and in Beijing.

5. Who owns the malls?

Chinese shopping malls are mostly financed by local developers and investors from Hong Kong as well as joint ventures. But there is interest more and more from investment fund managers who buy up properties, dress them up and then resell to make quick profits. Although the Chinese government does not own malls, government on every level takes an interest in promoting development and encouraging investors. This has contributed to the extremely successful free market economy in a Communist society.

6. What classes of people are the malls intended to attract?

Affluent Chinese tend to travel to Hong Kong or aboard to do their shopping, as they are wary of buying expensive fakes! Thus the malls cater mainly to tourists and middle sandwich-class Chinese. Chinese factory workers do not to visit these malls frequently due to their low wages.

7. What sort of retail outlets are common in Chinese malls?

Foreign brands, such as Levi's, Stacy, Timberland, Kentucky Fried Chicken, McDonald's, and Pizza Hut, are present. High end names, like Gucci, Tiffany & Co., and Christian Dior, and Japanese department stores are also represented. There are fewer local stores, because they cannot afford the rents. Chinese shoppers also tend to purchase foreign imported goods whenever possible, as local product designs, quality and packaging still leave allot to be desired. Much of this is changing since many companies have set up factories in China, and vast improvements have been made in these areas.

China is a bit like Japan in the 1960s and early 1970s, as manufacturers are quick to copy, improve on, and reproduce products at lower prices. However, the way they use branding for products still leaves a lot to be desired, as their brand names are difficult to connect in the international market.

8. Are there significant differences between malls in China and other nations, like the United States?

Packaging is very similar, but due to the size of Chinese malls and the comparative low costs of materials and labor, they tend to be larger and of higher quality construction. They also include many more non-retail outlets, such as restaurants, recreational facilities, children's theme parks, skating rinks, multi-scene cinemas, and bowling alleys. The Chinese malls try to have a lot under one roof so that shoppers will be seduced to stay there as long as possible and spend more money within one complex.

9. Are large Chinese malls making profits?

Some are, but many are sustaining losses. The problem is expertise in marketing and operation. There is a lack of such home grown expertise in China, so professionals are recruited from Hong Kong to market and run many of these malls. Shopping centers in less then ideal locations and run exclusively by locals tend to suffer the most.

10. Are there any indications that the Chinese may be building malls well ahead of consumer demand, as suggested in some international media?

Supply is probably greater then demand. The Chinese are building very quickly and consumer demand is not growing at the same pace but this is changing very quickly. Infrastructure in many places is not keeping up and completely in place and overall logistics are often not available for support. There is also a problem that the average worker, the man or woman on the street in China is still used to the traditional way of shopping in small shops on the back streets and family type stores on the main streets. It is a dangerous situation and the bubble could burst. The large malls located in the central core business districts of cities will survive, but the ones operating in the fringe areas are in a dangerous situation, because there is an insufficient threshold population to support such malls. That being said, most investors are now very cautious and confine their investments in shopping malls to the large cities with large urban centres and cosmopolitan populations.