With sales growth in China slowing for the likes of fancy handbags and designer wear, luxury-goods makers are importing a solution from other continents: discount malls.
Familiar sights along U.S. highways or in the remote outskirts of European cities, outlet malls peddling high-end brands are now popping up in China. Shoppers can wander a faux Italian village—flush with Roman architecture and flashy fountains—where a genuine Burberry trench coat, for example, sells for about 9,000 yuan ($1,450), some 40% off the original retail price in China.
Value Retail PLC, a London-based developer and operator of luxury shopping outlets in Europe, plans to invest about $450 million in three new outlets in China over the next five years, bringing its total to five.
London-based investment management firm TIAA Henderson Real Estate is expanding an existing outlet in the northern city of Tianjin and opening two more in Shanghai and the southern Chinese city of Foshan. It also plans to acquire more sites in central, west and north China this year and next.
The deep-discount strategy does carry the risk of tarnishing a luxury brand’s name, though Avery Booker, a partner at consulting firm China Luxury Advisors, says that by providing a way for brands to discount outside their own stores, the malls may help them preserve their pricey, exclusive images. Still, Value Retail and TIAA Henderson—which are building outlets near Shanghai Disneyland—declined to disclose the names of tenants.
Image aside, experts say, the malls can help brands clear inventory that built up as the luxury business was hit by a slowdown in economic growth, tougher competition and a clampdown on lavish official spending and gift-giving. Luxury-goods sales in mainland China rose 2% to 116 billion yuan, or about $18.8 billion, last year, but that marked a slowing in sales growth from 7% in 2012, according to consulting firm Bain & Co.
Read more at The Wall Street Journal.