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Why China’s Outlet Mall Boom Is More Than a Pandemic Blip | China Decoded, BoF Professional

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Before the pandemic, discount shopping hubs like the UK’s Bicester Village and McArthurGlen Serravalle in Italy were major draws for China’s more than 150 million annual international travellers. Many of those shoppers have found outlet malls in their own backyards, despite being stuck on mainland China for the past 18 month.

According to data from Chinese outlet, 39 outlets saw sales surpassing one billion yuan ($154.9 Million) last year. This is an increase of 34 outlets in 2019. mallOutletscn.com is an industry publication. The most successful players, including Shanghai’s Bailian Outlets Plaza, Beijing’s Capital Outlets and Florentia Village’s outpost between Beijing and Tianjin, enjoyed sales of more than half a billion dollars each last year.

That’s in contrast to the sector’s performance in countries like the UK, France and Italy, where sales were lost due to a lack of international travellers, as well as retail closures. The number of operators offering rent relief to tenants in the wake of shop closures also contributed to a decline in rental revenue.

While outlet malls were generally more popular than indoor malls when countries opened, footfall at these outlets malls remained below prepandemic levels. Placer.ai, a market research firm, conducted research in the US in August 2020 and found that outlet mall visits had dropped 26.9% year-over-year.

BoF reported that Value Retail, which is the owner of The Bicester Village Shopping Collection (a group of 11 luxury discount shops in the UK, continental Europe, and China), said that first-half sales at two properties in China easily surpassed 2019 levels. It declined to comment on how this compares with its sales outside of China villages. The sales at its Shanghai property increased by more than two-thirds compared to the pre-pandemic period. Meanwhile, sales at its Suzhou Village grew by eighty percent. The company stated that more than three quarters (75%) of its customers during this period were first-time guests to its mainland properties.

China is in many ways defining the future for our business.

And consumers aren’t coming just for the discounts, Value Retail founder and chairman Scott Malkin said. The group allowed its luxury brands to use 10 per cent of the outlet floor space in a pandemic-era experiment. Malkin stated that full-priced products accounted for up to 30% of the revenue in some boutiques.

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The “business in China in many ways is defining the future of our business,”He said. “In the past 18 months we’ve pivoted and done almost a billion dollars in new business from activities we didn’t have before.”

Following initial testing in China, the company is now planning to introduce regular VIP events. Hundreds are planned globally this year across Value Retail’s properties. It’s a change from 2019, when Malkin said VIP events existed, but “not in this kind of organised way.”

The domestic outlet sector is also comparatively resilient to ongoing concerns over Covid-19 because it is driven by a largely local consumer base, said Daniel Zipser, senior partner and head of McKinsey & Company’s consumer and retail practice in Greater China. Although the Delta variant has been reintroduced in some cities due to new outbreaks in China, sales are likely not to be affected by travel restrictions.

“Local outbreaks mean many families are likely to stay close to home looking for staycations and day trips which could potentially play to the advantage of outlet malls,”James Macdonald (senior director, Savills Research China), said.

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Whether or not China’s outlet malls see their growth spurt stunted by Covid-19 in the short-term, existing trends and new habits being developed by Chinese consumers bode well for the segment in the long run.

Poised for Growth

Outlet malls in China were rare a decade ago. The country’s shopping mallThe country was experiencing a boom, with new air-conditioned commerce centers popping up all over. International outlet malls were also becoming popular among Chinese tourists, who were eager to buy luxury goods at a lower cost in Europe. The conventional wisdom was that these outlets would not appeal to Chinese consumers as the discount shopping malls.

After all, it’s inherently difficult to recapture the experience of European-style destination shopping in the suburbs of a Chinese city. It was difficult to lure people away from the air-conditioned comfort of the growing number of inner-city shopping malls without the brands and assortment found in overseas outlet malls.

Florentia Village’s first China outlet recreated European outlet experiences on the mainland. RDM Asia.

Fingen Group, an Italian real estate and retail group, entered this unknown territory. It already owned five outlet malls in Italy in partnership with McArthurGlen, which was also an outlet specialist. RDM Asia, Fingen Group’s real estate arm, opened Florentia village, an outlet. mall situated between Beijing and Tianjin, China’s first real European-style outlet mall. The group has now opened seven outlets in China after ten years of operation in China. This attracts shoppers with a variety of products and services. “European experience”Outdoor malls with fountains, plazas, and classic Italian architectural cues.

According to CBRE research, 110 outlet malls were opened nationwide in 2019. This is a double increase in the number of outlets malls in the country between 2017 and 2019. According to CGS-CIMB, sales in this sector tripled between 2012-16, outpacing overall growth of physical retail sales.

This space is also drawing new investment. RDM Asia raised $200 million from international investors to finance a vehicle called Silk Road 2, which will help in the opening of new Chinese centres. It’s also working on two new acquisitions, one of which is an existing outlet it plans to convert into a Florentia Village outlet, president Jacopo Mazzei said. The Florentia Village Shanghai extension added almost 300,000 square feet and 150 stores to its space. Mazzei estimates Florentia Village outlet centers will reach $2 billion in revenue in 2019, compared to $1.2 billion in 2019.

Outlet malls have doubled in number between 2017 and 2019, reaching 110 nationwide.

Domestic retail groups, which are locally grown, are also trying to get on the market. Sasseur Group, founded by Chongqing-born entrepreneur, Xu Rongcan (also known as Vito Xu), has 11 malls around China and a real estate investment trust that listed on Singapore’s stock exchange in 2018. Interviews with local media outlets revealed that Xu is currently searching for malls in poor condition that could be converted into outlets.

Beyond the Pandemic

According to Savills’ James MacDonald, there is likely to be some shift back to shopping at designer outlets overseas once international travel resumes, but it’s “unlikely to be to previous levels.” New shopping behaviours forged during the pandemic are also finding longer-term support from factors like the increased convenience of domestic travel in China; a narrowing price differential for luxury products between China and elsewhere; an expanded range of products; brands participating in China’s outlet scene; and government schemes to encourage domestic consumption.

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The market is expected to continue its strong growth. mallOperators are trying to create areas of competitive edge that will keep them ahead on the domestic market and help them retain their appeal when travel opens up again.

Digital innovation is a key area in which many are looking to invest. China, which is expected to see more online retail sales than offline sales this year, is especially dependent on online sales channels. Florentia Village is aiming to reach online sales of $150 million in three years, RDM Retail’s Mazzei said.

The future of retail is digital. The war is over. But the future of fashionBrands are still physical

Value Retail takes a different approach and focuses more on virtual selling rather than traditional ecommerce. It’s set up a concierge service via WeChat to showDirect personal messages between a client or sales associate can be used to sell products.

“It’s very clear, the future of retail is digital; the war is over. But the future of fashion and brands is [still] physical,” Value Retail’s Malkin said. “Our approach, instead of Alibaba and JD.com, it’s WeChat and a concierge, it’s personalised.”

As with so much else, Malkin says the evolution of China’s outlet mallSector has been greatly influenced by this unique period of pandemics, even though the foundations for its current trajectory were established long before Covid-19.

“I think Value Retail’s business was going to embrace these kinds of changes anyway,”He said. “But the pandemic served as an accelerant, it served as a catalyst.”



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