In China, a Glut of Shopping Malls

And the government is set on building even more

Author: Man-Chung Cheung

June 2, 2017

China’s retail sector is undergoing a major shift as a result of rapidly changing consumer behavior, adoption of technology, the emergence of local competitors and the surge of ecommerce.

eMarketer projects retail ecommerce sales in China will reach $1.26 billion in 2017, an increase of 36.1%. Growth is expected to continue in the healthy double digits over the next three years. By 2020, retail ecommerce is expected to make up more than 37% of total retail sales in the country.

Shopping mall operators in China may be feeling the impact of retail upheaval most intensely. According to a study published in September 2016 by the Chinese Academy of Social Sciences (CASS), many of China’s 4,000 shopping centers lack the ability to compete with digital retailers and are quickly losing their appeal among consumers. As a result, CASS estimates that up to one-third of malls could be destined for closure within the next five years.

A recent survey by PricewaterhouseCoopers (PwC) attempted to measure the impact of online shopping in China on physical stores.

About one-quarter (24%) of digital buyers in China said the presence of Alibaba’s business-to-consumer (B2C) platform Tmall had led them to shop at physical stores less often. However, only 3% of respondents stopped shopping at retail stores completely as a result of Tmall’s influence.

Paradoxically, while many shopping malls are closing down, another 7,000 are still planned for construction.

Chalk it up to a not so liberalized economy.

The shopping mall building boom is partly the result of the government’s grand vision to transform the country’s economy into one driven by consumption. And the unchecked shopping mall building spree has been encouraged by regional governments, helping to create the oversupply of shopping centers in the first place.

All of this effort has resulted in China being home to some of the largest shopping centers in the world. According to real estate company CBRE’s “Global Shopping Center Development” report, seven of the top 10 cities with the greatest amount of shopping center area in 2016 were in China, with Shanghai and Beijing in the first and second spots, respectively.

However, the CBRE report also cautioned that the majority of Tier 1 and Tier 2 cities surveyed were at medium or high risk of oversupply when it came to retail space.

Mounting mall closures and vacancies have caused operators to scramble for new strategies to attract patrons.

For example, dining with friends and families is an extremely important part of social life in China. As such, many mall operators are beginning to rethink the placement of restaurants within the mall layout.

By featuring attractive dining outlets near the entrance of shopping malls and seating fashionable diners, operators hope to pull in traffic.