Malls will go under from e-tail: experts
Some shopping-mall developers in China will go bankrupt this year as they lose even more ground to online retailers, according to a McKinsey & Co China expert.
Gordon Orr, a Shanghaibased director for the New York-based management-consulting firm, predicts that malls owned by smaller, cash-poor developers and city-sponsored State-owned developers won’t survive the onslaught from fastgrowing electronic retailers for long.
“The weak will get weaker, and while they may be able to consolidate, it’s more likely they will go out of business,” Orr wrote in his list of predictions for 2014, released this week.
Plans by development firms to increase China’s shoppingmall capacity by 50 percent in three years — amid a 50 percent jump in annual online retail sales — are “rash”, given that the industry relies heavily on mall retail sales to generate returns, Orr wrote.
“If clothing and electronics stores are pulling back on the number of outlets, what will fill these malls?” Orr wrote. “Certainly, more restaurants, cinemas, health clinics and dental and optical providers. But banks and financial-service advisers are moving online, as are tutorial and other education services.”
Orr, who is known for his annual China business forecasts, predicted that malls in “weak locations” will “suffer disproportionately” at online retailers’ expense.
A downturn in fortunes for mall developers would reverse history. Recent decades saw shopping malls draw traffic away from large State-owned and operated department stores, as China’s shoppers gravitated toward more foreign and smaller-format retailers. A similar fate befell once-dominant US department stores following the rise of suburban shopping malls after World War II.
Frank Chen, director of China research for commercial real estate firm CBRE, wrote in an industry outlook in October that the increasing popularity of online shopping poses a serious threat to China’s brick-andmortar retailers. “Cases of operational failure and withdrawal among retail properties will likely become more common,” he wrote, identifying the online shopping boom as the culprit.
In other forecasts, Orr predicted that 2014 will see stronger demand for the stocks of solar panel makers as an increasing number of developing countries, aided by the World Bank, turn to solar energy to improve their electricity access. Falling solar-energy prices amid technological innovation and a stronger focus on operational efficiency also increase the appeal of solar-panel stocks, he wrote.
After years of struggle amid a glut of supply, solar companies expect a strong 2014, continuing the comeback that started late last year, both in terms of revenue growth and stock prices. Many solar stocks, while nowhere near their alltime highs, more than tripled in value in 2013, Orr wrote.
In last year’s third quarter, many Chinese solar-panel makers reversed year-ago losses by posting profits. The State Grid Corp of China’s decision to allow small-scale solar-power plants to hook up to the grid helped the comeback, as did a State Council subsidy program that prompted panel manufacturers to invest in building and operating solar farms, Orr wrote.
Late last year, a US solarpanel maker opened another chapter in a longstanding trade dispute with China, asking the US Commerce Department to impose new duties on imported modules made of parts from the Chinese mainland or Taiwan. The petition, brought by SolarWorld Industries America, is intended to close a loophole in the US decision to impose duties on imported Chinese modules. Should the petition go forward, it could effectively block Chinese manufacturers from the US market, Sun Guangbin, secretary general of the solar photovoltaic products branch at the China Chamber of Commerce of Machinery and Electronic Products, told China Daily.
Orr also predicted 2014 will see China’s crumbling residential and office buildings — many of which were made with lowquality methods and materials and are now aging badly — receive “much needed attention” in the form of “a wave of reconstruction”.
He also forecast that the Chinese government will shift its focus to job creation from economic growth to counter rising input costs and new technology that have undermined job growth. “While few companies are shifting manufacturing operations out of the country, they are putting incremental production capacity elsewhere and investing heavily in automation”, Orr wrote.
A highlight of the year will be Shenzhen BYD Daimler New Technology’s unveiling of its electric BYD-Daimler Denza EV car at the Beijing Auto Show in April, “in another effort to create a real Chinese electricvehicle market”, Orr wrote. BYD Automobile and Daimler-Benz formed their joint venture in April.
The year also will see companies looking for ways to increase productivity, a doubling down on high-speed rail, more logistics-industry mergers and acquisitions, the Shanghai Free Trade Zone being fairly quiet, chief information officers becoming a hot commodity and European soccer teams investing in the Chinese Super League, according to Orr.