China’s Luxury Mall Dilemma

on July 25 2011 | in Lifestyle Trends | by | with 1 Comment

southchinamall

The largest mall in the world is the South China Mall in Dougguan. It is also the most empty.

Less than a dozen of the mall’s 15,000 retail spaces have been leased, which many blame on poor market planning: although the mall was constructed in a city of 6 million, the consumerist middle class—which thrives in America—is practically nonexistent.  And in the context of the current rush for Eastern expansion, the South China Mall is a testament to oversaturation.

Most of the luxury malls in China are waiting for the arrival of the middle class. Right now, there are not enough middle class consumers to make the luxury mall business sustainable.

Stacey Widlitz, guest blogger for CNBC, suggests that retail development is following the same unhappy path as real estate in China, which has surged to unsustainable, hugely inflated prices. In the rush to bring consumer products to China, retailers—and mall builders—are getting ahead of themselves.

“With so many retailers drawing our attention to China as the next engine of growth, we should keep an eye on who is looking too aggressive at the starting gate,” Widlitz writes.

Although second-tier cities boast huge (6- and 8-million) populations, many of the residents of these areas have a per capita income of “about the price of a Louis Vuitton bag.” And no matter how many residents a city has—whether it’s 80,000 or 8 million—if consumers can’t afford the products, it’s no deal.

Female shoppers in China are drawn to sales, much like female shoppers in the U.S. These women, unlike their male counterparts, are more likely to haggle over prices. And although men make more than half of luxury purchases, women are steadily gaining.

While China’s market is growing at an incredible rate, Chinese opinions and tastes are changing at an equal pace. “Today’s hottest part of town is tomorrow’s dud,” she writes. For businesses interested in growing in China, she recommends short-term leases and an ear to the ground, following the lead of companies like Tiffany’s and Coach.

“Before you put up a fancy flagship store… weigh what the area might look like three to five years from now.”

For venues like the South China Mall, however, it may be a little too late—just as, perhaps, the mall itself came too early. There could be hope for the glut of second-tier malls when the Chinese middle class truly comes into its own. But for now, it’s a waiting game.

photo credit: epa

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One Response to China’s Luxury Mall Dilemma

  1. Terry says:

    I think your facts are wrong, Dubai Mall in the UAE is the biggest mall in the world, but a very interesting article that looked at the other side of Chinese retail. You should publish more articles like this.

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