Hurdles Face Retailers, Investors Going for the Gold in China

China will command the world spotlight next month when it hosts the 2008 Olympics, but retailers and developers will continue to look toward the world’s largest nation as a growth market long after the last gold medal is awarded. During the next three to five years, upwards of 300 new malls will come on line in China, estimates Bill Martin, co-founder of ShopperTrak RCT, a retail traffic consultant. The staggering statistic comes as no surprise; a study published this year by CB Richard Ellis Inc. found that 40 percent of the top 226 international retailers already operate stores in China—the ninth highest percentage in the world. American retailers ranging from Tiffany & Co. to Wal-Mart continue to flock to the country, seeking a share of the growing 1.4-billion person market. As reported by CPN, this month Tiffany is opening its eighth location in China. The 2,000-square-foot store is located in the coastal city of Qingdao. Investing in Chinese mall development is far more complex than opening stores, but a handful of U.S. developers are making inroads there, too. In February Taubman Centers Inc. disclosed that it had acquired a 25 percent interest in The Mall at Studio City, a 600,000-square-foot property in Macao. Taubman Centers will eventually invest an estimated $200 million in the mall, which is part of the $2 billion Studio City mixed-use project. And Simon Property Group Inc. owns 32.5 percent of five Wal-Mart-anchored centers currently under construction, the first of which is scheduled to open this year. But even China’s renowned economic engine by no means guarantees success for a mall. As the International Herald Tribune reported last year, crowds have been sparse so far at the massive South China Mall in Dongguan, China, a city south of Hong Kong. At 9.6 million square feet, the mall dwarfs even the vast Mall of America in Bloomington, Minn. Overbuilding and the relative novelty of the shopping center format may account for some of the challenges and underperformance of some centers.As the mall format matures in China, and scores of new malls open, creating successful approaches will challenge both owners and tenants. “The newness of it all is going to be pretty important in the next few years,” Martin predicted. In particular, unless they can identify combinations of stores and services that will consistently draw shoppers in healthy numbers, developers and owners in China run the risk of repeating formulas that do not work for the mall’s market, he argues. As Martin sees it, the question is, “What do they do to make the next mall better?” With that in mind, ShopperTrak is following the parade of U.S.-based mall investors and retailers from the U.S. Recently the firm opened an office in Shenzhan and increased its team on the ground in China from one to six. ShopperTrak is keeping mum about possible deals, but Martin reported that the firm is in serious talks with Chinese developers. Although the size of its team is modest in the early going, ShopperTrak is betting that owners and retailers will turn to monitoring shopper traffic as a strategy that is less subjective and more reliable than sales figures. Whoever the initial winners and losers are, long-term success for the new mall format in China will likely turn out to be a marathon rather than a sprint.