China's e-commerce shift puts malls under pressure

Parkson Retail

24/06/2014 05:02

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are his own.) 
  
    By Ethan Bilby 
    HONG KONG, June 24 (Reuters Breakingviews) - Times are tough 
for Chinese shopping malls. Some stores have closed as customers 
move online. Such pressure won't stop. If internet shopping 
keeps growing at its current pace, a quarter of the Middle 
Kingdom's retail sales could online by 2020. Yet there's still a 
place for well-planned plazas. 
    China's e-commerce explosion has been unkind to 
old-fashioned retailers. Online markets like Alibaba's Taobao 
have given consumers easier access to unbranded fashion and 
electronics while making pricing more transparent. Sales in 
chain stores grew 9.9 percent last year - the slowest rate since 
1998, according to Chinese state media. Department stores, which 
focus on fashion, are also feeling the pinch as customers swap 
browsing racks for the precision of searching the web. 
    As online sales expand, the pressure will only intensify. 
Total retail sales in China last year were 23.4 trillion yuan 
($3.78 trillion). Although online shopping was only 8 percent of 
that figure, it grew by 30 percent - more than double the rate 
of total retail, according to Nielsen. That's already more than 
in the United States, where roughly 6 percent of all retail 
transactions go via the web. Assuming total retail grows by 10 
percent annually and online sales keep expanding at their 
current rate, Chinese e-commerce will make up over a quarter of 
the total by 2020. 
    Yet the growing spending power of Chinese consumers means 
the country still has room for shopping centres. Urban 
households with disposable income over $16,000 will expand by 18 
percent yearly between 2012 and 2022, according to McKinsey. 
    Developers are still opening lots of new gallerias in China. 
The rate of growth in new malls by area is expected to peak at 
31 per cent this year, according to Jones Lang LaSalle, yet the 
real estate group still expects the number of square metres 
devoted to shopping centres to expand by 18 percent in 2016. 
    Malls with good locations and branded stores should still be 
able to draw a following. But to stay relevant, they'll need 
more offline-only attractions such as swanky restaurants or 
basement aquariums. Online retailing will make some shopping 
centres unviable. Those that survive will need to meet a higher 
standard. 
 
 
     
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    CONTEXT NEWS 
    - China's total online sales were 1.85 trillion yuan ($298 
billion) last year, up 30 percent since 2012, according to 
market research firm Nielsen. 
    - Total sales of consumer goods in the People's Republic 
reached 23.4 trillion yuan last year according to the National 
Bureau of Statistics of China, up about 13 percent since 2012. 
    - Moody's said on June 12 that competition from e-commerce 
was hurting the sales of Chinese department stores as the 
ratings agency lowered its sales growth projections for 
operators Maoye International and Parkson Retail Group. 
    - China's largest chain stores saw the slowest growth since 
1998 last year, according to a Chinese Chain Store and Franchise 
Association report cited by China Daily. Sales rose by 9.9 
percent to 2.04 trillion yuan ($329 billion). 
 
     
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    -- For previous columns by the author, Reuters customers can 
click on  BILBY/  
    (Editing by Peter Thal Larsen and Katrina Hamlin) 
    ((ethan.bilby@thomsonreuters.com))     
            ((Reuters messaging: 
ethan.bilby.thomsonreuters.com@reuters.net)) 
    ((On twitter @EthanBilby)) 
 
 
Keywords: BREAKINGVIEWS CHINA/RETAIL