Missed Opportunities and Opportunities
China, is a land of development opportunities. However in the past 20 years, China experienced a fair share of missed opportunities with regard to its retail developments. As a retail market researcher who has observed this market for over 20 years, a lot of these missed opportunities in my opinion could be avoided if the retail developers had taken a bit more care to better understand the intricate fabrics of this fast developing retail environment and most importantly, the people who would ultimately dictate the success of their centres: Chinese consumers.
The beauty of China is its constant economic progress. Historical missed opportunities in the retail sector present another round of potential re-development opportunities for the future years to come.
In the 1990s, China opened its door to Hong Kong investors and invited them to help shaping the commercial landscape of major Chinese cities. Hong Kong developers such as New World, Wharf and alike were offered prime locations and they developed landmark retail projects, in Hong Kong style. No one knew what would be a suitable retail development formula for China back then anyways.
Hence, in the 1990s, a series of high rise developments with foreign sometimes intimidating facades, were being super-imposed in the most prominent downtown locations in Chinese cities. Department stores and multi-level centres with low ceiling height and crowded merchandise display were common formats.
Alongside with these Hong Kong related investments, local Chinese state enterprises also followed suit and developed centres in similar style anchored by local state-run department stores. Small scale strata titled, amateur designed retail spaces started to mushroom throughout China too.
In China, local governors and officials have been the quasi guanxi development partner in many property projects, often co-developed with the new rich in China, and this collaboration flourished in the 2000s.
These government related property projects were seen as the epitome of urban development, often regarded as parallels to the achievement and success of respective local governments in their efforts in modernizing their cities. The developers and decision makers for these retail real estate projects belonged to the generation of Cultural Revolution, typically at the age of 40s and 50s. They had land approval powers, commanded construction capabilities, however had no shopping centre development experience and often had little retail exposure themselves. They built for grandeur and conducted no development feasibility study or market research prior to undertaking those super ambitious projects, which resulted in some of the biggest white elephant mall projects in China.
I had my biggest jaw-dropping moment when I heard a developer of the current largest mall in Beijing made his decision overnight to double the size of his centre to close to 600,000 m² because simply he thought “Beijing, as capital city in China should have the biggest mall, and he claimed people attending the Olympics in 2008 would ALL go to his mall” despite in reality, his mall is located in a challenged outskirt location with difficult public transport access. The mall opened in year 2004 and the developer initially estimated that the mall would attract 50,000 shoppers a day, but the actual number was far smaller, as few as 20 in an hour. Though patronage numbers have somewhat improved throughout the years, this mall is still not trading successfully.
In the past 8 years or so, foreign players started to seriously explore retail development opportunities in the mainland. Few succeeded in securing deals with local partners. GIC, Capitaland, Ivanhoe Cambridge, Aeon were good examples of success stories in the retail development scene in China. More innovative forms of retail were introduced. IKEA will soon open their first regional centres.
Major downtown re-development attempts on retail centres were witnessed in first tier cities such as Shanghai, Beijing and Guangzhou.
The re-development movement in second and third tier cities is also slowly taking place. Most downtown areas are still dominated by clusters of not so attractive high rise developments, with obsolete and unpleasant shopping environments.
Redevelopment of existing old sites in prime locations is a significant current trend in China.
My recent works have been assisting foreign and local investors in conducting market research for centre development at green field sites, or being engaged to look into re-development/re-positioning projects at prime locations which were built in the 1990s. My typical work scope is to enable developers to gain indepth understanding of quantitative and qualitative market variables by collecting and analyzing information on detailed demography, population growth, external growth factors, distance factor, infrastructural impacts, existing and future retail competitions, and overlay findings of our primary consumer surveys to project future performance of a development site.
So far my China client composition is made up of 80% foreign and 20% local, which suggests to me that local Chinese developers still have a long way to go in appreciating the value of a proper pre-development market study in the course of retail development.
As a market researcher, I am fascinated by the quantum of the fast growing retail appetite in China. I have come to learn through my research studies that retail behaviours of consumers in first, second and third tier cities in northern, southern, eastern, western regions share interesting similarities and differences due to socio-cultural-economic diversities.
The inner attitude of consumers at the various age groups also differs drastically because of the historical and cultural experiences and those attitudes project into a spectrum of retail aspirations and corresponding shopping behaviours. For example, the cultural revolution generation who is over 50 year age now, the generation who grew up in the 1980s during the beginning of open door economic era and people who grew up after the 1990s, the so called “princes and princesses of China” as a result of China’s one-child policy share very different values and outlook of life.
Studying the retail behaviours of the China new rich and urban young has been fascinating too. I have come across coal mining tycoons from inner western region bringing in sacks of cash and purchased all the luxury brands you can think of in a centre; there is celebrity image consultant who can earn up to USD 20,000-30,000 for a weekend shopping trip with an aspiring make-over candidate; the urban young will take turn to be “generous” to pay for their whole group of friends when they dined out instead of being “cheap” in sharing the bill every time. I am glad that I get to experience all these primary information first hand and be able to strategise for my clients.
China is still very young as a country in terms of shopping centre development and the consumers are super hungry for quality retail spaces which are designed to suit to their taste, identities, shopping habits and retail aspirations. Development opportunities are presented in first, second, third till the nth tier cities as China urbanises. Retail landscape will no doubt get more competitive and complicated as the market matures while land cost escalates. There will be plenty to study and I am thrilled to work to turn missed opportunities into opportunities by the tool of market research.
By Elkie Yip, Spectrum Research Asia