Text: | Print|

Mall developers trying to dazzle picky shoppers

2013-08-06 08:30 China Daily Web Editor: qindexing

It takes more than nerve to invest in a shopping mall in Shanghai, at several billion yuan a throw. It also takes more than money.

Too many have opened in the past few years, and most of them give shoppers a case of dj vu, with similar floor plans, fashion and food.

But there's still no shortage of property developers ready to jump on the mall bandwagon, each believing that they have something dazzling or unusual enough to lure increasingly picky shoppers.

Many have failed to unseat long-established malls that are well-known among local shoppers and frequent visitors. But there are some notable exceptions.

K11 Art Mall, a newly renovated mall in New World Tower, owned by Hong Kong New World Development Co Ltd, is one of them.

To attract the lunch-time crowd to its many new third-floor restaurants, the mall built a vegetable garden on the podium under the skylight where several pink piglets roam and oink.

Diners don't actually think that the vegetables in the restaurants come from that garden. But the piglets have created a sensation that helps fill seats in the restaurants, which serve a wide range of cuisines from Japanese to Mediterranean to Hong Kong.

"I cannot say how many diners are attracted by the pigs, as our restaurant was already quite crowded before the pigs showed up in June," said Yang Yan, marketing director of Urban Harvest, which is located near the K11 "farm". But it has added several tables near the vegetable patch to cater for the increase in customer traffic.

There are about 100 malls across Shanghai. Influenced by controls on the residential market, Shanghai's commercial real estate market has been overdeveloped in recent years, and there is an oversupply in the retail market.

Another problem is the large number of look-alike malls, with their repetitive merchandise and layouts.

Many department stores have turned to more frequent, intense sales promotions to overcome customer ennui. Others adjust their tenant mix constantly.

But analysts said that the fundamental solution is for each mall to offer something unique.

Drawn by the buzz

Kang Jiadong, a 35-year-old office worker who was having lunch the other day at Urban Harvest in K11, said he came to the restaurant the first time because "everyone in his social circle was talking about it" and he was intrigued.

But now he frequents the restaurant because "it feels safe to eat what you can see".

The restaurant, opened by a former Shanghai office worker, is not the first and probably won't be the last to offer the experience of "organic" foods and a "return to nature". That's especially attractive with the problem of food safety becoming a national, if not international, concern.

But Urban Harvest has gone beyond words by taking some real action, bringing the "nature" and "organic" aspects of eating and food preparation into the view of diners.

"The appearance of K11 Art Mall has played a significant role in upgrading the neighborhood commercial atmosphere, and led to a rent increase at nearby retail properties," said a report from property consulting firm Knight Frank.

Zhang Yu, who runs a baking studio in the mall, said her studio is seeing "twice as many customers as other branches in the city", although the K11 branch was the last to open.

The studio Zhang works at, ABC Cooking Studio, is a Japanese bakery-like store teaching clients how to make bread and cakes. Courses are mainly offered by membership, costing 1,000 yuan ($163) to 20,000 yuan each.

"I cannot say how many customers are brought in by the pigs...but there is definitely an uninterrupted flow of customers every weekday and weekend," Zhang said.

K11 is one of the new projects that has made a clear effort at finding a unique position. Another mall has sought to combine shopping with art in a quest to deliver sensuous comforts to consumers. L'Avenue in Changning district has focused on luxury brands, positioning itself as the anchor store of Shanghai.

Another example of positioning is the Japan-based Takashimaya Department Store, situated in the city's East Asian expatriate area of Gubei, which introduced many brands to Shanghai for the first time. The store primarily serves foreigners.

"Focusing on their unique positioning and making good use of their own characteristics will help retail properties realize their strong potential and enable the retail market in Shanghai to have healthy development in the future," said Andy Zhang, managing director of Cushman & Wakefield China.

The quest for the mall experience is not unique to Shanghai. China Vanke Co Ltd, the nation's largest property developer by market value, owns about 6 million square meters of commercial projects in 52 cities, of which 18 are malls, according to Xinhuanet.com.

Unlike residential property, which is easily affected by government policy, and the office market, which is influenced by macroeconomic conditions, malls will experience robust growth in China as domestic consumption is being viewed as a main driver of the country's economic growth, said Joe Zhou, head of research for Jones Lang LaSalle East China.

"With the nation's average income growing year after year, demand for shopping malls will rise rapidly among better-off middle-income consumers," said Zhou.

Location, location, location

But analysts also caution that the race to invest in shopping centers may lead to a short-term surplus if the locations aren't well chosen or the tenants don't bring in the crowds.

"If all investors realize that one type of investment offers high returns, this investment will soon become highly risky with market saturation," said Xie Chen, director of research at CBRE Shanghai.

High returns require high standards of development and management, said Zhou.

In the next few years, a lot of retail area is scheduled to come into the market, according to James Macdonald, head of research in China for Savills.

Beijing and Shanghai may see their retail stock increase by 14 percent and 30 percent, respectively, from the end of 2012 to the end of 2014.

Chengdu in Sichuan province, Shenyang in Liaoning province and the Chongqing municipality are expected to see their retail space expand by 88 percent, 50 percent and 53 percent, respectively, during the period, Macdonald said.

"We have noticed there is an oversupply in some areas of some cities, such as remote, suburban parts of second-tier and third-tier cities. The suggestion for developers focused on shopping mall investment is to be more prudent," said Xie.

Malls in cities such as Shenyang in Liaoning province are competing for a limited number of tenants and some of these centers are largely vacant, added Xie.

In the long run, retail projects offer a ray of hope in China's commercial property market, analysts said. In Shanghai, the average gross yield of prime retail projects ranges from 5.5 to 6.5 percent, while prime offices are closer to between 5 and 6 percent, according to Macdonald.

Serviced apartments offer a yield of about 4 to 5 percent, while strata-title residential developments tend to be in a 2.5 to 3 percent range, according to Savills' data.

Office investments tend to be somewhat more straightforward, making it easier to understand the project's prospects. They also offer more exit strategies, such as strata selling or offloading the property to another investment fund.

Retail investments require specialized teams to extract the maximum value from the project and are hard to exit, but if done well, they can certainly produce high returns, analysts said.

Comments (0)
Most popular in 24h
  Archived Content
Media partners:

Copyright ©1999-2018 Chinanews.com. All rights reserved.
Reproduction in whole or in part without permission is prohibited.