The Great Mall of China
— Beijing’s Retail Spaces Get Bigger and Bolder

Taxi-hopping between Beijing’s plethora of 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 thirty years before economic reform began in the late seventies, China was a virtual retail desert, the shopping experience limited to the distribution of basic necessities like food and fuel. Now however, driven by confidence in a booming economy, ever-growing levels of disposable income and Western-influenced psycho-social development, Chinese consumers are enthu- siastically engaged in a retail frenzy that shows no sign of abating.

Since 1978 the retail sector in China 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 now flock to multi-tiered edifices of glass, marble and concrete spanned by countless escalators, enthralled by the 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 now has over 400 malls and large scale retail spaces. Five of the world’s six largest malls are currently in China - by 2010 it will be seven out of ten. The world’s largest mall (soon to be exceeded) is currently 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 – from 35 major projects at the turn of the 21st century to just eight projected for 2004-6, 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 to 15 percent. The proportion of urban dwellers in China has grown from less than 20 percent in 1980 to over 40 percent today – it will reach 60 percent by 2030. China’s gross domestic product grew by about 9% in 2005, with a similar figure predicted this year. According to the Beijing-based 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 government control over the retail sector has meant that more and more Chinese stores and malls are now being run by non-mainland Chinese and foreigners. In the past, many mainland Chinese stores failed to establish clear identities because of the parochial influence of political appointees. Poor designs by some Chinese architects funneled 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 apply their conceptual skills to high-end, high-tech construction projects, which in Beijing often integrate retail spaces, offices and luxury apartments in one, “mixed” design.

Together with the growing number of foreign developers trying their hand in Beijing and across China, the emergence of international retailers and brands on the Chinese market has been increasingly marked in recent years. The total opening up of the Chinese retail sector in January 2005, as agreed with the WTO, gave fresh impetus to the influx, and has driven up demand for retail properties in both Beijing’s core and non-core shopping areas. Gone were limits on retail outlet numbers, rules confining foreign retailers to large cities, and regulations capping foreign companies’ stakes in local ventures at 65 percent. Prior to WTO entry in 2001, the operations of all foreign retailers and developers in China were highly regulated and restricted.

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 Executive General Manager at Gulfland Property Development, who are responsible for construction of “The Gate”, a 120,000m2 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 states, “In my view only 10 or 20 percent of these new spaces will realize their true profit potential. Poor management, poor location, 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 are now understanding 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 in order to benefit from the increased capital and expertise”. Cushman & Wakefield are the leasing agent for LG Twins Mall, a recently completed upmarket development on Chang’an Avenue targeting hip executive businesswomen.

So, what does the future hold? Paradoxically, more and more Chinese are visiting Western-style 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 want to buy, however, it’s also why they’re buying the products that they do. Inextricably linked to China’s rising GDP and 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, the retail space in China is going to get bigger and bolder – only time will tell if it’s going to get better.

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Mall Scene -