China’s shopping mall boom

December 10, 2010 

Rising consumerism fuelling demand for more quality malls

It is a typical evening after work – groups of fashionably-dressed office women walk into a ZARA store for some retail therapy and to de-stress after a hard day’s work. After trying the latest in women’s fashion, they walk out with happy smiles and paper bags of their purchases in hand.

This scene is played out every night – except that it is not in Singapore. Instead, it is in a residential area in Beijing, in Wangjing Mall. It shows the fast-growing consumerism in China that a community mall can sustain a ZARA store, whereas in Singapore, ZARA is located only downtown.

Fuelling this is the fast-rising disposable incomes of the Chinese population. In Beijing, the per capita disposable income of urban households per annum has grown more than 65 per cent in five years – from about 17,700 yuan ($3,500) in 2005 to about 30,000 yuan this year.

Impressive as this is, it is surpassed by the national average. Based on data collected by the National Bureau of Statistics (NBS) in China, the per capita disposable income of urban households per annum has doubled from about 10,000 yuan in 2005 to about 20,000 yuan this year. This shows that China’s second- and third-tier cities are catching up with the first-tier cities in terms of the earning power of their populations.

This increasing disposable income is behind the rapid development of the country’s retail sector. According to the NBS, retail sales in the country have grown by about 18 per cent in the first 10 months of this year, compared to the same period last year. In terms of absolute numbers, retail sales in China have already hit 12.5 trillion yuan in the first 10 months of this year.

This is not a phenomenon seen only in the first-tier cities of Beijing and Shanghai, but also applies to the second- and third-tier cities in China. Last year, retail sales in Chengdu, the capital of Sichuan Province and one of the fastest growing second-tier cities in China, grew 20 per cent – well above the national average of 15.5 per cent.

Retail success in China is therefore not just about having big malls and stores in the glitzy first-tier cities but also having a presence throughout the country’s second- and third-tier cities as well.

This was exactly what we at CapitaMalls Asia (CMA) recognised when we started our mall business in China in 2004. While we have 13 shopping malls in the first-tier cities of Beijing and Shanghai, our other 39 malls in China are in second- and third-tier cities.

Of course, creating successful malls that shoppers will want to come to is not just about constructing the buildings. CMA leverages on the professional mall management expertise of our 89 malls in 49 cities in Singapore, China, Malaysia, Japan and India, as well as our network of 7,700 tenants to ensure that the retailers we attract to our malls meet the needs and aspirations of the communities that they serve.

This helps to draw shoppers to our malls. In the first nine months of this year, shopper traffic at our malls in China grew by 10 per cent compared to the same period last year. More importantly, our tenants recorded a 21-per-cent jump in their combined gross turnover in the same period – showing that the shoppers we attract are spending more.

China is also going through an economic transformation as the government stimulates private consumption to power the country’s next phase of growth. Last year, private consumption accounted for only 35.1 per cent of China’s gross domestic product (GDP). In a more mature economy, such as the United States, private consumption accounted for 70.8 per cent of GDP. This goes to show that there is still plenty of room for private consumption in China to grow, as a percentage of GDP.

This will fuel an increase in retail sales and, with it, demand for quality shopping malls. CMA is well-positioned to cater to this demand for shopping malls in China. We have 52 shopping malls in 34 cities in the country, of which 36 are already operational. This year, we have already opened three malls in China, and are targeting to open three more by the end of the year.

In addition to delivering our current pipeline of malls, we continue to grow our portfolio. This year alone, we have committed to invest nearly $1 billion in three new malls in China – Meili Mall in Chengdu as well as an integrated development in Tianfu in the city; and a prime shopping mall and office development in Luwan in Shanghai. With our strong balance sheet and cash position of $1.4 billion, we will continue to look out for further acquisition opportunities.

With China’s economy expected to grow by 9.5 per cent this year and its rising consumerism, its retail sector is expected to be one of the strongest in the region. CMA is committed to meeting this demand for quality shopping malls in the world’s second-largest economy, with its population of 1.3 billion people.

By Lim Beng Chee, CEO of CapitaMalls Asia.