Magazines Archives - 2007 June

Mega developments mushroom in China
Cover Story

Asian malls are getting bigger in a trend more apparent in China than elsewhere in the region. Jayanthi Iyengar talks to some industry experts about the lures of the Chinese market and the pitfalls to watch out for.

When you think of a 1.3-billion population with more than 350 million in the consuming middle-class, there is a ten- Wdency to dream big. This is the case for Chinese billionaire Alex Wu and his Dongguan San Yuan Ying Hui Investment and Development Co, which dreamt of locating what is believed to be the world’s largest mall in central Dongguan, China.

On this score, Wu’s 7.1-million-sqf South China Mall has overtaken West Edmonton Mall in Alberta, Canada, at double the size. The latter was built in 1985 at a cost of US$750 million.

South China Mall, representative of global mall-development trends, is part of the Asian shopping-centre boom that is seeing mega projects fast sprouting up in the region. Among these are Lotte World (Seoul) in South Korea; Thailand’s Central World Plaza and Siam Paragon (both in Bangkok); VivoCity in Singapore; and Malaysia’s Berjaya Times Square (Kuala Lumpur).

China alone boasts, among others, Jin Yuan, or Golden Resources Shopping Mall (Beijing); Beijing Mall; Dongfang Xin Tiandi, or the Oriental Plaza (Foshan, Guangdong); Zhengjia Plaza (Guangzhou); Chia Tai Square (Shanghai, Jiangsu); and Panda Mall (Chengdu, Sichuan).

In fact, the nation is already home to seven of the world’s 10 largest malls and, with many more under construction, may soon see an eighth, say industry observers, making it a sought-after mall destination for global brands, foreign investors and shoppers.

It is in this context that Wu’s Dongguan experiment is studied with interest. South China Mall is the country’s first theme-park shopping centre. At eight times the size of Singapore’s Suntec City Mall, it is the equivalent of six football fields in length and described by its developer as “a one-stop consumption centre integrating recreation, dining, travel, leisure and culture”.

The project is organised into seven zones, with themes modelled after international cities such as Europe’s Amsterdam, Paris and Rome, and California, USA. Its one amusement and many theme parks are targeted at both adults and children. Visitors with a taste for the exotic can imagine themselves in Venice, Italy, riding a gondola on a mile-long canal skirting the mall or in France visiting the Arc de Triomphe, albeit a replica.

“For such a huge investment, the developers had better work at attracting 10,000 visitors a day,” says Kelvin Ng, CEO, Synergistic Real Estate Management and Network (SRE), Singapore, which manages 15 retail centres and mega malls in Singapore, China, Taiwan, Malaysia and Vietnam.

South China Mall’s developer appears to have given much thought to its location after factoring in the growth and development saturation in Beijing and Shanghai where real-estate values are going through the roof. They also seem to have heeded predictions by experts like CMR China founder and CEO Shaun Rein, who believes that for those not already in the hot spots, the next wave of business opportunities lies in China’s Tier II cities in the hinterland.

South China Mall is located in one of these — at the centre of the new District of Wanjiang in Dongguan city, the heartland of Pearl River Delta to the north of Hong Kong. It even observes close proximity to the Dongguan long-distance and city bus terminals, placing it just an hour’s bus ride from many of the other cities in Guangdong and only 3km off the Daojiao exit of the Guangzhou- Shenzhen expressway. Developers estimate that the Guangzhou-Shenzhen light railway, when completed, will bring tourists to the mall by the truckloads.

However, despite all the careful planning, the anticipated visitor numbers have yet to materialise. Most days see only a trickle of footfalls, and these are not converting into sales.

Of the many factors that industry observers hold responsible for this situation, one that recurs revolves around doing homework well before entering the Chinese market. “There is absolutely no doubt that those who do proper homework on China will meet with great success. As the country rushes into middle class — the bastion for shopping centres — it presents phenomenal opportunities,” notes Ian Thomas, chairman of Vancouver-based Thomas Consultants, Canada, which was commissioned by the South China Mall developer in 2004 to help market the property.

Further, although China is booming, its thriving middle class’ buying power is underestimated in the urban areas but possibly overestimated in the rural parts. In contrast with the GDP per-capita purchasing power parity of US$43,500 in the US and US$31,400 in the UK, China’s GDP per capita stands at US$7,600, a figure that could be halved in Tier II cities.

Also, while the Chinese consumers in these rural cities may have disposable incomes ranging from US$3,500-$4,000, their savings rate of 36% per annum implies that they, unlike their urban cousins, are more inclined to save than spend.

Considering the nation is just emerging from self-imposed isolation, national pride, too, is seen as a driver of its mall development as appears the case with South China Mall.

However, this also means “too many developers have built atrocious and illthought- out projects, more for ‘face’ than commercial value”, observes CMR’s Rein who is not surprised that such “projects have flopped”.

South China Mall is within a 50-mile radius of the Oriental Plaza in Foshan and Grandview Mall in Guangzhou, which are two of the world’s top 20 of the kind.

Meanwhile, the Thomas Consultant chief suggests that Chinese developers may be wrong to choose scale over volume. “The key to success,” Thomas defines, “is to tailor the centre to the market it is to serve. A developer’s mandate is not just to build the biggest but rather the best.”

Lamenting that developers are venturing into the market without proper research, SRE’s Ng says: “Although China has a large population, there is a need for strong value proposition to make each project work.”

Citing Shenzhen’s Window of the World, a park where visitors can get a glimpse of some world-famous sites through their replicas, he says the replication of ideas alone cannot make a winning mix.

Among the world attractions at the Shenzhen park are Mahamuni Pagoda of Yangon, Myanmar; Cambodia’s Angkor Wat; the French Eiffel Tower; Britain’s Tower of London; traces of Italy in the form of the Roman Colosseum and gondolas on artificial waterways that smack of Venice; the pyramids and Sphinx of Egypt; Australia’s Sydney Opera House; and the Niagara Falls, Grand Canyon and Manhattan skyscrapers of the US.

As these replicas are built on a scale of 1:1, 1:5 or 1:15, depending on the monument, the park is a tough act to follow for most projects, South China Mall included.

“How are you going to bring the shoppers to the mall?” questions Ng, arguing that mega developments the likes of West Edmonton Mall offer significant tourism-and-entertainment content. “Developers spend a lot to plan and design this mall with many world-class experts to ensure the product is right and the target audience defined,” he stresses.

Thomas also singles out Simon and Gerrity International as one of the proven developers that have taken the right route into the market — by doing their homework and opting for neighbourhood/community centres, anchored by traditional hypermarkets catering to the basic food, convenience and clothing needs of their determined customer base. “These are the types of centres that will be successful in the world’s biggest emerging market,” he avers.

Apart from issues of scale, “the shopping experience” is deemed by Rein as one of the most important factors differentiating between success and failure. In his opinion, “going shopping” in China was not an enjoyable experience until recently.

He finds today’s Chinese consumers increasingly demanding, with the opening up of the market, higher disposable income, and exposure to the western consumer style and culture being reasons why “sub-par shopping experiences” are no longer acceptable to them. “They want better service in retail environments, better product choices and more relaxing shopping environments, and are willing to pay more for this,” Rein maintains.

The old way of business was apparently partly to blame for taking away the joy of shopping. For instance, salespersons did not get commissions as a practice or, if they did, had represented only one brand. This explains why they were unhelpful before when their assistance on another brand was sought.

The shopping environment in the past was also unappealing — the lighting and music took away rather than added to the experience.

“Bringing in more foreign retailers, however, has jumpstarted the trend towards more consumer-centric selling practices and environment — at least for the better retailers,” Rein says.

Referring to information obtained from polls on shoppers conducted for retailers like Toys “R” Us, a recent entrant on the Shanghai scene, he recounts how one shopper “just loved it” where “the product selections are as great as the service”. Rein highlights that Chinese consumers now value excellent product lines, strong staff support and a good shopping ambience.

This can be attested to by foreign retail chains such as Parkson and Zara — which have performed well even with their expensive products and despite being in a market that is traditionally price-inelastic — because these stores are attractive in terms of display and the sophistication of sales force, Rein pontificates.

He explains that Zara, by factoring in the country’s fast-changing styles, has met the consumer’s aspirations in shopping ambience and merchandising, making it a hit. For Chinese retailers, this approach is an about-turn from their old way of blaring pop music and touting for sales at the door by clapping and yelling to draw attention.

Rein also finds Parkson’s in-store display, particularly in its cosmetics section, a winner and “more appealing” than in Pacific Place. “In-store display is the key for marketing purposes,” he maintains, pinning the failure of centres such as CP Group’s Super Brand Mall on developers’ “sort of helterskelter approach, which left consumers confused”.

Super Brand’s mistake was in selling luxury items on one floor while pirated products took pride of place on another. The mall recently roped in Canadian shopping development group Ivanhoe Cambridge to create a sound tenant strategy. “This has turned Super Brand Mall around 180°,” Rein cheers.