More bad news for China’s struggling brick and mortar retailers as a recent report from the Chinese Academy of Sciences and Social Sciences Academic Press predicted as many as one-third of all shopping centers in China will close their doors during the next five years.
With ecommerce heavyweights Alibaba and JD.com dominating the retail sales, some of China’s largest mall operators are already feeling the pinch. Joy City Property and Maoye International posted profit warnings earlier in the year as buyers opt to shop online.
Change Predicted for All Mainland Retail Centres
The report by the respected central government think tank predicted change across the board for Chinese shopping centres, foreseeing that, in addition to the malls expected to close, another third will be transformed into experiential shopping centres, while the remaining third will adopt an online to offline (O2O) model that integrates the Internet with physical shopping.
While two decades ago China had an undersupply of malls, the country has quickly overcome the deficit, with the mainland now home to 4,000 shopping centers — three times the US total. That population of malls is expected to grow to 10,000 by 2025, according to the CASS report. Research from JLL revealed 40 million square metres in new mall space is expected to enter the market between 2015 and 2017.
Department stores in the country fared still worse than shopping centres, with sales growth contracting 0.7 percent during 2015, according to data from the Fung Business Intelligence Centre. Malaysia-based department store Parkson, which operates 59 outlets in China, announced it was selling assets to offset heavy losses in the country.
Chinese Shoppers Swap Malls for the Internet
According to Reuters, Suning, one of China’s largest retail chains, needed 12 months to bring in the same amount of sales that Alibaba’s Tmall website generated in two months. And while the electronics retailer is able to keep the lights on, others have not been so lucky.
A total of 138 department stores, 262 supermarkets and 9,464 clothing stores closed in China between 2012 and 2015 according to data from the Business Economics Institute under Beijing Technology and Business University. That goes hand-in-hand with findings from the McKinsey Global Institute that showed ecommerce accounted for 20 percent of all clothing purchased and 15 percent of all household goods purchased in 266 cites in China.
McKinsey predicts ecommerce marketplaces will bring in anywhere from $420 billion to $650 billion in sales by 2020. That is in stark contrast to the slowing sales physical retailers are coping with.
Physical Stores Not Going Down Without a Fight
While the mainland’s earth-bound retail sector has been taking a beating, not everyone is ready to give up. China Properties Group, a Shanghai-based developer which owns and operates the Concord City mixed-use project and the World Trade Plaza in Chongqing, took out a full page ad in the New York Times international edition late last year pleading with consumers to boycott online shopping.
Other retailers are opting for a more modern way to fight back against China’s growing ecommerce sector.
Of China’s top 100 retail chain operators, 83 currently have their own online stores in 2015. Of this number, 20 also have a mobile shopping app for consumers to use.
“Physical stores should abandon the old model. They can use online shopping and WeChat to facilitate transactions and provide more convenient service,“ Hong Tao, director of the Business Economics Institute, proclaimed.