Tuesday, January 7, 2014

A Prediction for State-Owned Mall Developers in China

Recently I have shared scenes from the site of a future shopping center and a recently opened shopping center in Changsha, Hunan province. On that note, I'll share the eighth of ten predictions for China in 2014 by McKinsey & Company's director Gordon Orr:
Mall developers go bankrupt—especially state-owned ones

Shopping malls are losing ground to the online marketplace. While overall retail sales are growing, e-retail sales jumped by 50 percent in 2013. Although the rate of growth may slow in 2014, it will be significant. Yet developers have already announced plans to increase China’s shopping-mall capacity by 50 percent during the next three years. For an industry that generates a significant portion of its returns from a percentage of the sales of retailers in its malls, this looks rash indeed. If clothing and electronics stores are pulling back on the number of outlets, what will fill these malls? 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.

I expect malls in weaker locations to suffer disproportionately. These are often owned by smaller developers that can’t afford better locations or by city-sponsored state-owned developers that are expanding into new cities. The weak will get weaker, and while they may be able to consolidate, it’s more likely they will go out of business.
Neither of the developers for the two Changsha shopping centers recently featured here, the Changsha IFS and the Kaifu Wanda Plaza, are state-owned and both shopping centers (especially the Changsha IFS) are what in what I'd consider to be "better locations". But a number of other shopping centers can be found in the same area, and it is easy to wonder whether they will all succeed.

In fact, at least at the moment, not all are. More on that topic later.

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