China’s empty malls get weirder

The Pak Banker - - OPINION - Adam Min­ter

THE Prin­temps depart­ment store out­let in Shang­hai's Pudong District would seem to have all the ameni­ties nec­es­sary to suc­ceed in mod­ern Chi­nese retail: lux­ury brands, a ven­er­a­ble 150-year Parisian re­tail­ing his­tory and an ex­clu­sive lo­ca­tion.

De­spite th­ese ad­van­tages, how­ever, the store's man­age­ment thought it was still miss­ing some­thing to at­tract cus­tomers. So next week they're un­veil­ing a gi­gan­tic, twist­ing, dragon-shaped slide that shop­pers can use to drop from fifth­floor lux­ury bou­tiques to first-floor lux­ury bou­tiques in death-de­fy­ing sec­onds. So­cial me­dia users are won­der­ing, half-jok­ingly, whether the slide will kill any­one. But Prin­temps has a dif­fer­ent con­cern. Chi­nese shop­pers, once seem­ingly in end­less sup­ply, are no longer turn­ing up at brick-and-mor­tar out­lets. In Au­gust, Dalian Wanda, the coun­try's big­gest mall de­vel­oper, an­nounced it was shut­ting 40 of its 600 malls, sound­ing an omi­nous note for a once-buoy­ant sec­tor.

That's a global trend, of course. But China's ur­ban plan­ners have long made malls cen­tral to their de­signs, both to meet grow­ing de­mand and to sym­bol­ize the as­pi­ra­tions of a rapidly ur­ban­iz­ing middle class. In 2009, plan­ners in Shang­hai set aside 70 acres for a $200 mil­lion mall mod­eled af­ter, and slightly big­ger than, the Pen­tagon ( it cur­rently stands empty). In 2014, 44 per­cent of the world's newly com­pleted malls, and nine of the 10 top cities for mall space un­der con­struc­tion, were in China, ac­cord­ing to real-es­tate con­sul­tancy CBRE. Deloitte still pre­dicts that China will have 10,000 malls by 2025, up from 4,000 to­day.

China's eco­nomic slow­down is des­tined to pinch that growth. But if the prob­lem was sim­ply tough times, Prin­temps wouldn't be in­stalling a dragon slide. Far big­ger chal­lenges, which should've been ev­i­dent years ago, are un­der­cut­ting the long-term case for brick-and­mor­tar shop­ping em­po­ri­ums.

The first is high taxes on im­ported lux­ury goods. A 2015 study found that prices on 37 bigticket items were 40 per­cent to 68 per­cent higher in China than in the U.S., France and Ger­many. Partly as a re­sult, Chi­nese spent $183 bil­lion abroad in 2015, ac­count­ing for an as­ton­ish­ing 46 per­cent of global lux­ury sales. Own­ers of empty malls on the main­land feel the pain.

More con­se­quen­tial is e- com­merce. The ad­vent of on­line shop­ping has stunted brick- and- mor­tar re­tail­ing around the world. But China of­fers a unique ex­am­ple, thanks to the per­va­sive use of so­cial me­dia and the de­vel­op­ment of apps -- in par­tic­u­lar, WeChat -that seam­lessly in­te­grate shop­ping and mes­sag­ing. WeChat's 600 mil­lion monthly users can eas­ily tog­gle be­tween a mes­sage about a pair of shoes and a mo­bile store on the same app where those shoes are for sale.

In China, where per­sonal rec­om­men­da­tions were cru­cial to driv­ing com­merce even be­fore so­cial me­dia, this kind of retail is trans­for­ma­tional. Ac­cord­ing to a 2015 McKin­sey sur­vey, 38 per­cent of In­ter­net users said they spent more time shop­ping on­line af­ter join­ing a so­cial me­dia ser­vice. In Bei­jing, an ex­tra­or­di­nary 82.6 per­cent of retail sales now oc­cur on­line, ac­cord­ing to the lo­cal govern­ment. Coun­try­wide, of­fi­cial fig­ures show on­line sales grow­ing at roughly triple the rate of the in-store va­ri­ety.

To fix the shop­ping mall short­fall, China could lower taxes on im­ported lux­ury goods. But with so many shop­pers go­ing abroad, the im­pact would likely be lim­ited (there's a cache to buy­ing your Louis Vuit­ton bag in Paris in­stead of Shenyang).

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