China’s splurge on building shopping malls will result in the closure of a third of all malls in the country within five years, says a report released by the Chinese Academy of Social Sciences (CASS).
While the rise of online shopping is largely blamed for the decline, regional governments are responsible for encouraging too much shopping mall development, reported the 21st Century Business Herald.
Recent closures of shopping malls have taken place this past August in Qingdao, Chongqing, and Dalian, while the most sensational example of this growing trend has been Shanghai’s fake “Pentagon” shopping mall.
A report from Beijing Technology and Business University showed that 138 department stores, 262 supermarkets and 6,209 sports stores closed between 2012 to 2015.
Despite the mounting numbers of closures, China isn’t done building new shopping malls with 7,000 new malls planned by 2025.
China’s ambitious retail space development was in full swing back in 2012 when it was the was the world’s top developer of new shopping malls. That year, Chengdu built four new shopping malls with a total combined space of 616,000 square meters, and was already making plans to build another 2.9 million square meters of retail space.
In the four years since then, China’s shopping malls have grown to about 4,000, an increase of nearly 40 percent. At the time, the boom was attributed to urbanization and the rapid rise in the country’s service industry, the People’s Daily reported.
Unfortunately, not everyone is optimistic of exponential growth.
Back in 2012, Brown Shipley senior investment fund manager Kevin Doran said the building boom in shopping malls in China doesn’t make sense.
“You have got seven to eight million people entering the workforce in China every single year, so you have to give them something to do in order to retain the legitimacy of the government,” says Doran. “Maybe 10 or 15 years ago they were doing things that made sense – roads, rail, power stations etc – but they have now got to the point where it’s investment for investment’s sake.”
Malls to moult their appearance
The CASS report said the other two-thirds of China’s shopping malls must economically restructure themselves in order to survive.
According to the report, one third of Chinese shopping malls are expected to integrate retail services at their brick-and-mortar stores with online shopping. This strategy is already being employed by IKEA stores in China, who look to expand beyond its stores that are only located in first-tiered cities.
The remaining third of Chinese shopping malls are expected to change into retail marketplaces that will emphasize customer experiences. And with so many malls closing throughout China, some have already taken this approach with positive results.
Famous as a white elephant that lay dormant for almost a decade, the New South China Mall in Dongguan has successfully rebranded itself by catering to middle-class consumers with restaurants instead of luxury goods stores.
However, the success of the New South China Mall may not be a formula that can be easily repeated by other failed Chinese malls. According to the report, another reason for the lack of support from Chinese consumers for its shopping malls is that they are regarded as being “homogenous” experiences that don’t have any differences between them.