The continuing growth of online retail sales and corresponding threat to spend in physical retail malls appears to be the standout ‘nightmare’ for senior real estate developers in China. That’s the headline of research commissioned by global architecture, urbanism and design practice Broadway Malyan and entitled ‘The Caffeine Report’.
The fieldwork has been conducted by Ipsos MORI, a key part of the Ipsos Group, a leading global research company. A total of 24 telephone interviews were conducted in March with China-based development leaders and development-focused real estate and property professionals.
The research covers a range of topical issues and the extent to which industry professionals agree or disagree with each of the areas below (using a five point semantic scale – strongly agree, tend to agree, neither agree nor disagree, tend to disagree, strongly disagree).
‘Nightmares’ – issues that keep developers awake at night (% who agree: ‘strongly’ or ‘tend to’):
- The continuing growth of online retail sales and threat to spend in physical retail malls (83%)
- The lack of good market, demographics and consumer spend research to aid planning retail development in tier two, three and lower city locations (75%)
- The lack of new and differentiated consumer brands (63%)
- The increasing vacancy rates in shopping malls in tier two and three cities (63%)
- The broad slowdown in the economy and drawn-out ‘soft landing’ (58%)
- Current land policies and speculation driving valuations beyond realisable levels in the foreseeable future (58%)
Other concerns are the challenges posed by the move towards retail-led mixed-use development, away from the emphasis on residential-led schemes (54%), lack of understanding about the commercialisation and leasing infrastructure processes due to the lack of maturity of the retail industry (54%), slowing expansion plans on the part of luxury brands (50%) and residential ‘bubble’ and long term effect on the ability of Government to curb inflationary pressures across the property sector (42%).
‘Sweet dreams’ – issues that help developers sleep at night (% who agree: ‘strongly’ or ‘tend to’):
- The desire and even craving on the part of customers for new, innovative and enjoyable retail experiences (88%)
- The newly appointed next-generation Central Government’s commitment to the internal market and promotion of domestic consumption (83%)
- The continued focus on China on the part of international retailers and their associated expansion plans and general long-term commitment e.g. food and beverage chains (75%)
- The increasing creation of new Central Business Zones and supporting infrastructure by Local Government and associated sustainable development opportunities (67%)
- The pace of change and growth in home-grown brands and their move to premium locations (63%)
- The opportunities presented by the move towards retail-led mixed-use development (63%)
Other positives are the release of land by Local Government for urbanisation and development (46%) and the international growth potential of ‘brand China’ and knock-on boost in confidence for the home market (38%).
Respondents were also asked an open question about the common aspects of the China retail experience and evolving retail sectors in other emerging economies such as India and Brazil.
Similarities referenced include the huge potential afforded by the markets, their large populations, growing middle classes, strong desire for development and growing consumer demand, as well as the increasing economic strength, maturity and sophistication of consumers and brand awareness, and the opportunity for creativity in the face of increasing consumer expectation.
However, the uncertainties faced by major retailers considering inward investment were also mentioned as similarities, as were the disparities in consumption across regions and between cities within countries.
Differences highlighted included suggestions that China is witnessing faster increases in domestic consumption and market transparency, the country is more evolved in terms of infrastructure and transportation and benefits from greater demand for high-end and luxury goods, as well as family-centred consumption.
However, it was also suggested that faster development in China has resulted in the country seeing more substandard development, in terms of design and quality, as well as higher labour costs.
For each of the respondents who participated in the research the practice donated 500 Yuan to ‘Heart2HeartShanghai’, a charity that provides support and financial assistance to Chinese children who require heart surgery.
Practice Director Jeremy Salmon said: “The principal concerns resonate with many markets across the world and the emphasis placed on the threat of online shopping is evidenced in China by the recent closure and market exit of some key international brands.
“The domestic market in China has come a long way very quickly and really evolved over the last three years. This represents a real challenge to all those in the industry and new marketing and commercial innovation is needed to reconnect income streams to real estate overheads.
“As designers we are committed to rising to the challenge by placing more emphasis on the creation of great places, diverse and mixed-use development and experience-driven and engaging environments for human enjoyment.
“Objective one must be to get customers to visit and visit again and once they have arrived to keep them as long as possible. That requires the right commercial approach supported by the right design and layout.
“That approach will make retail space distinctive from day one and keep it flexible enough to enable continual renewal and repositioning, without the expense of major overhaul or rebuild, to deliver authentic and fresh customer experiences and project coherent meaningful lifestyles.”
Photo – The Lefo Mall Shopping Centre has recently opened in Suzhou (Jiangsu Province Eastern China) and is the largest retail project to be designed by Broadway Malyan in China to date