Malls will go un­der from e-tail: ex­perts

China Daily (Canada) - - FRONT PAGE - By MICHAEL BARRIS in New York michael­bar­ris@chi­nadai­lyusa. com

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.

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