Suburban malls steal trade from city centers as buyers move from core areas

Various stores in East Nanjing Road. It's a story of fading glory for traditional stores in downtown Shanghai as non-core retail areas attract many customers, especially young people. Usually they cannot afford apartments in downtown areas and choose to live in suburban areas so commercial complexes on their doorsteps are obviously a more convenient choice than stores in city centers. Zhang Heping / For China Daily

Department stores struggle against competition from Internet vendors

Liu Qing, a 37-year-old shop assistant, yawned over her counter selling cosmetics during the lunch hour on a Tuesday in September in a department store in East Nanjing Road, one of the busiest retail streets in Shanghai. It had been three hours since she started working at 10 am, but she hadn't had a single customer.

Like Liu, a veteran in the industry with more than 20 years of selling various products ranging from makeup and stationery to shoes, salespeople in downtown department stores, especially in State-owned retail businesses in high streets, are struggling amid increasingly fierce competition from online stores and commercial complexes in not so prestigious locations.

Liu says nowadays young customers tend to go to online shops or buy things in department stores with more entertainment facilities.

"My daughter never visits my store. She says it's old-fashioned, without a proper restaurant or cinema and there is nothing much to attract here," said Liu.

The retail market in Shanghai is experiencing significant changes, according to Qi Xiaozhai, a researcher with Shanghai Commercial Economic Research Center.

Non-core retail areas are attracting many customers, especially young people. Usually they cannot afford apartments in downtown areas and choose to live in suburban areas so commercial complexes on their doorsteps are obviously a more convenient choice than stores in city centers, said Qi.

Just a stone's throw away, Spring Department Store in Hongkou district, which has been operating for 16 years in the region, recently suspended its operations for a refurbishment. The 8,000 square meter shopping mall has been struggling for survival because of a sharply declining number of customers. It may provide other services after re-opening, according to an announcement.

New department stores or fashion brands are more inclined to choose to open in non-core retail areas, according to the latest report on retail property by Knight Frank, a property services firm.

In the second quarter of 2012, three shopping centers opened in Shanghai, all of which are located in non-core areas, the report said.

With e-commerce and modern department stores changing the face of consumer behavior, traditional department stores are gradually losing their status. In the second quarter of this year, the First Department Store moved out of Huaihai Road, with BMW 4S taking its place. Meanwhile, the market for modern department stores and specialized stores remains positive.

New moves

Marks & Spencer opened three stores in Shanghai during the second quarter of the year. With Best Buy gone from its Zhongshan Park outlet, American furniture manufacturer and retailer Ashley filled the space and Gloria Department Store will open soon in Mega Plaza. Metro opened its Jiading New City store on June 29, while Decathlon opened its 10th sports outlet in Qibao Town, Minhang district.

Due to competition from new business formats, traditional department stores will continue to close or be upgraded over the next one to two years, the Knight Frank report said.

In north suburban Shanghai, Baoshan Wanda Plaza opened at the end of June with a total retail gross floor area of 67,400 square meters. Apart from its branded features including a Wanda department store and Wanda Cineplex, Baoshan Wanda Plaza has brought in other brands such as Marks & Spencer, H&M, Zara and Uniqlo. Its total gross floor area, including homes and offices, is 300,000 sq m. Analysts say it has filled the gap in large-scale shopping centers for the northern region of Shanghai.

Retail properties can thrive in non-core areas because they are going with the tread of China's residential property development, said Alan Sun, an analyst with Knight Frank.

In first- and second-tier cities such as Shanghai, a large proportion of the population is living in non-core areas. They provide sufficient customer flow and stable demand for daily necessities as well as entertainment and recreational demand during weekends, said Sun.

If developers have made effective efforts to optimize the combination of tenants and maintain the properties well, it is very likely that non-core area businesses can excel in the long term.

"In Europe and North America, neighborhood communities are usually a successful business pattern that many developers follow. In China an increasing number of developers are doing the same," said Sun.

"I bought my apartment in Baoshan in 2007 and when I moved in there was no market around. I had to buy my necessities from bazaars held by local farmers during weekends. When I broke my thermos, I traveled 30 minutes to the nearest supermarket, taking buses and the subway," said Ge Ting, a 27-year-old IT specialist and frequent visitor to Baoshan Wanda Plaza.

"For me it looks like many other commercial complexes in the city but it is just a stone's throw from my apartment and it has got almost everything I need for my life. I have no reason to go elsewhere," he added.

Another shopping center located in a non-core area in Shanghai and opened last quarter was the Life Hub @ Anting in Jianding Anting Town, close to Metro Line 11 Anting station. It has a retail gross floor area of 65,000 sq m. The retail market is active and developers and retailers are optimistic.

Despite its distance from downtown areas, non-core retail areas may attract local residents with an optimized combination of functions and brands, said Fanny Leung, vice-president of Chongbang Group, the developer of Life Hub @ Anting.

"We paid a lot of attention to entertainment facilities so young people can socialize here, have quality time and can enjoy the latest movies here not a single second later than those in downtown areas," said Leung

Leung said the group has confidence in non-core areas around Shanghai because it believes they have great potential.

"We are still negotiating over several possible projects on the outskirts of Shanghai," said Leung

A reasonable combination of brands will draw more customers even if the locations are not in currently prestigious areas, said Leung

The long-term challenge, however, lies in financial pressure which may hinder developers' capability and passion in maintaining the properties in the long term.

The current financing environment in China does not encourage developers to maintain a project for the long term, and many developers cannot afford the cost of maintaining a large group of professionals running the project with every possible resource. The result is that quite a number of developers choose a quick-money option - building the project and selling it as soon as possible.

After the introduction of several policies to curb speculation in the residential property market, many developers are beginning to switch from housing projects to retail property development, according to Edward Cheung, chief executive officer at DTZ's North Asia operations.

Decision makers understand that retail is a significant driver of economic growth and it will benefit various parties in the economic development of China, said Cheung.

In core-areas, traditional department stores in Shanghai have little ability and likelihood of getting back on their feet as shopping malls with homes and offices steal a large share of the retail market, said Sun of Knight Frank.

"If you want to stay in core areas, you must sell products or services with high profit margins that can balance the high cost of rent," said Sun.

Traditional department stores can no longer meet the demands of customers but they may survive if they review their current situation, adjust strategies and perhaps re-brand their services, said Sun.

Retail is the founding stone of a city's commercial activities and it is, of course, better to see more variety, said Sun.

wuyiyao@chinadaily.com.cn

(China Daily 09/17/2012 page13)