In the past year I’ve been involved in many commercial real estate projects. Specifically I have been working on creative concepts for the seasonal marketing campaigns of Chinese Shopping Centers. After having been in touch with some of the most prominent clients in the market, I wanted to write down some thoughts on the trends that I’ve noticed in China.
Guangjie, which roughly translates as window shopping, is increasingly seen by China’s newly affluent consumers as a key pastime. Rapid urbanization and the continuing growth of disposable incomes and expenditure has been the driving force behind the shopping mall boom of the past 10 years. The speed of the urbanization process has peaked in the recent decades (hitting 53.7% in 2013), giving birth to megalopolis with numbers that are unseen in the rest of the world. We could argue if the reasons that led these cities to lack of public spaces has been the authoritarian traits of the governments in this area. Or if the high demographic density together with the speed of the urbanization process (with a consequent lack of urban planning) are to blame for leaving these spaces heavily unbalanced. Though, no one would argue that the lack of public spaces.
A consequence of having more people living in smaller spaces is the greater need for public spaces in which to socialize and congregate. This is why shopping malls in China have been taken some of the functions that are performed by city centers in Europe. Chinese customers are therefore increasingly looking for a “lifestyle experience” when shopping. Many consumers now visit a shopping mall not just to buy a product, but to socialize with friends and family. Shopping malls that can offer a diversity of shopping, dining and entertainment facilities are therefore becoming increasingly popular. Innovative malls are incorporating value-added elements that attempt to recast the mall as the new downtown, including concerts, arts centers, spas, fitness clubs, and farmer’s markets.
From a palace of consumption to palaces of experience
Stuffing a shopping mall with luxury brands is outdated. Globally, the Shopping Center as it’s been conceived for the last half century is at a critical inflection point. Many large shopping malls in China used to be anchored by department stores or large supermarkets, but times have changed. The e-commerce revolution and the rise of digital technologies are fundamentally reshaping consumer expectations and shifting the function of stores toward useful and entertaining customer experiences. As these trends advance across the global stage, they are forcing mall operators to rethink how they conceive and operate their properties. Online shopping provides consumers with ultimate levels of convenience. Malls will never be able to compete with the endless product selection, price comparisons and always-on nature of online. Nor should they try.
To enhance their consumer experience, shopping malls are anchored increasingly by “experiential stores”. These are able to offer customers a unique and attractive experience that helps build customer loyalty. Apple Store is a case in point: all sales associates are trained to provide customers with personalized services and a more welcoming experience. In the meantime, international fast fashion brands such as Zara, Uniqlo and H&M have peaked in the last couple of years across China. Their low pricing strategies, fast turnaround time, and ability to capture the latest fashion trends are particularly appealing to burgeoning middle-class consumers. These fast fashion brands are also highly sought after by shopping mall operators, due to their ability to attract customers and increase foot traffic. Today, when consumers visit malls, they are looking for experiences that go well beyond traditional shopping. More and more consumers prefer mixed use developments where they can live, shop and work all within walking distance – instead of having to get into a car and drive to a crowded suburban mall. Mall operators have responded by adding live entertainment, such as music or fashion shows, restaurants, cinemas, ice-skating rinks, bowling alleys, and special seasonal activities to celebrate occasions like Christmas and the Chinese New Year.
The rise of boutiques malls
In design terms, this calls for as much attention to what public areas offer as the interior of boutiques. Although location remains the key real estate consideration for malls, a differentiated design and structure is increasingly important. Open air malls go a long ways toward lending an atmosphere of a town center, especially when they incorporate mixed use real estate. Many of the malls being built in urban areas are open and fully integrated with the landscape.
Swire Properties’ Taikoo Li mixed-use retail complex in Chengdu has helped to redefine the social retail strategy with its combination of heritage buildings and contemporary art in a low-rise town centre-style development. The 250,000 sqm pedestrian-only project opened late last year and is centered on the city’s 1,000-year-old Daci Temple and six other nearby historic buildings. In Shanghai, Shui On Group integrated antique walls, tiles and facades of 1920s and 1930s shikumen (stone warehouse gate) housing with shopping, dining and entertainment to create a new heritage upscale shopping district: Xintiandi. Despite early criticism for its theme-park retail design around a series of traditional public courtyards and grey flagstone lanes, it proved popular. Today a Shanghai landmark, it includes a new indoor element dedicated to contemporary design.
More recently, as the competition between retail spaces grew, in order to attract customers and differentiate themselves, more and more shopping malls have started investing money in seasonal decorations and campaigns. Year budgets usually vary from 1 Million RMB to 20+ Millions RMB, and are spent between decorations, digital marketing, performances and VIPs invitations. Others have added a variety of services and amenities such as art exhibitions and galleries. For example, Shanghai K11 Art Mall, which opened in Shanghai in mid-2013, organized an exhibition by French impressionist Claude Monet in March 2014 and displayed 40 original Monet paintings. The Kokaistudios-designed art mall still includes the essence of a shopping centre but its “art, people and nature” design philosophy means considerable investment in non-retail elements such as an urban farm and landscaping.
Quality over Quantity
In the past two years, as China’s luxury sales slow, brands rush to open new retail spaces has tapered off. Instead of rapid expansion, retailers are now focusing on quality over quantity when it comes to retail real estate in China as they adopt new strategies such as opening restaurants and promoting children’s clothing. Most luxury retailers are now cautious towards expansion in China Retailers are now focusing on consolidating their footprint into a solid network of stores in high quality locations, as opposed to expanding rapidly and opening many smaller stores, in order to extract the highest value from their sales network. Brands are focusing more on their flagship stores and making a stronger statement in the marke” through displaying more product lines. There is weaker interest in department stores but continued demand for prime locations. Brands wary of committing to a retail space are increasingly embracing short-term projects to encourage consumer awareness such as exhibitions, pop-up shops, an concept stores. For malls, anchor tenants that drive traffic are still key, but we also see a new emphasis on a curated mix of smaller stores that add a sense of novelty to the mall offering. Additionally, some malls are making greater use of temporary, flexible spaces that can accommodate different stores over time. Pop up stores, showroom spaces and kiosks provide customers with a sense of the unexpected and give them a reason to treasure hunt.
Meanwhile, luxury brands have also shown a growing interest in food and beverage in Asia, such as Gucci’s new restaurant in Shanghai and Dior’s new cafe in partnership with Pierre Hermé in Seoul. Among luxury retailers there is a view that entering the F&B business is a key step towards transitioning their brand from being totally fashion-oriented to more lifestyle-driven. By introducing new restaurants, brands can create a more complete experience for consumers that allows for relaxation and socializing while shopping—as well as sharing their experience on social media. F&B options are a way to reach more mass-market consumers for luxury brands that otherwise would restrict their target to an audience that would be too small to survive to itself.
Extend the communication with customers to before and after the visit
These pop-up temporary projects are not very cost efficient. But the high budgets are justified by a digital strategy that extend the communication with customers to before and after the visit. This is about engaging customers through compelling content and creating deeper bonds with them through social media and proprietary sites and apps, as well as loyalty programs. China is leading the world in mobile adoption. The trend is expected to drive a surge in sales through mobile over the next few years. In 2014, mobile devices accounted for 33 percent of China’s online purchases. It is predicted that this figure will almost double to 62 percent by 2018.
Malls try to reach out to their customers with customized offers, gift ideas and other targeted advertisements based on real time intelligence and location-based marketing (iBeacon for instance). While malls face the challenge of not having direct access to shopper purchase data, this can be overcome by inducing shoppers to use their smartphone to scan purchase receipts in exchange for points that can be redeemed for concerts tickets, books, discount vouchers for participating merchants, free parking or invitations to events. Alternatively, technologies such as face recognition, location-based mobile ads, and beacons are already being successfully applied in order to identify and establish targeted contact with repeat customers. Such technologies are also valuable for gathering consumer behavioral data from which malls can glean useful insights.
The rapid development of shopping malls is not without its challenges. Mega shopping centers can provide a one-stop shopping experience to customers. However, unclear market positioning, undifferentiated strategies and too similar tenant mixes have often led to the phenomenon of “ghost malls”, of which there are many. The concept of brands creating a certain lifestyle and not just selling individual products seems like it’s becoming increasingly important to Chinese consumers. It is true that more food and beverage chain stores and entertainment facilities can help increase foot traffic. However, to avoid very similar tenant mixes, operators have to fashion a clear market positioning strategy and come up with a distinct theme for their shopping malls.