China has a shopping mall glut, but investors believe there is still room to grow.
L Capital Asia, the Asian private equity business backed by LVMH Moët Hennessy Louis Vuitton S.A., will on Friday announce its second largest investment ever in China, and its first investment in an outlet mall anywhere in the world.
The Singapore-based fund is investing more than $100 million in Sasseur Cayman Holding Ltd., which was founded as a coffee shop at China’s Southwest University by a photography teacher there in 1989. The coffee shop has gone–demolished by city planners–but Sasseur now has four outlet malls, where domestic and global brands sell leftover stock at bargain prices.
“The outlet concept will become much bigger in China,” says L Capital Asia Chairman Ravi Thakran. “As Chinese consumers become more sophisticated, they want better value.”
Sasseur plans to add another four outlet malls this year and bring its network in China to a total of 20 over the next five years. It says sales have increased at 30% a year since 2008, when its first mall opened in Chongqing. Government figures show standard shops stalled last year, with sales by China’s top 50 retailers down 0.7%, compared with 10.9% growth in 2013.
“Outlet malls are countercyclical,” Sasseur’s founder and chairman Vito Xu says. “When retail sales fall, there is more excess inventory that needs to be cleared and more demand for bargain shopping.”
Sales, including clothing, food and electronics, at China’s outlet malls are expected to grow 34% a year between 2013 and 2018, ahead of the 20% growth for shopping malls, 8% for department stores, and 29% for online, according to consultancy Roland Berger. The next three to five years will be a critical window for outlet mall growth, it says.
Full-price shopping malls suffer from slowing demand and increased competition, and there is more to come. Of the 10 cities in Asia that will have the most shopping mall space added this year and last quarter, nine are Chinese, CBRE Research says. The other is Bangkok.
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