LVMH-Backed Fund Puts Down $100M to Join Rush into Outlet Malls

China’s tigers and flies may be hiding their Gucci bags and Prada purses in the closet this year, but an investment fund belonging to one of the world’s largest luxury purveyors is betting $100 million that demand for logos and fine leather will rebound soon.

According to an article this week in the Wall Street Journal, L Capital Asia, a Singapore-based fund manager backed by LVMH Moët Hennessy Louis Vuitton SA is putting its money into Sasseur Cayman Holding Ltd, a Chinese developer of outlet malls which now has four such projects selling discounted luxury items in China.

The investment by L Capital is a bet that outlet malls, long a staple of cost-conscious shoppers in the US, but only recently introduced to China, will catch on with the country’s famously label-driven consumers. However, the private equity firm and its partners will face stiff competition from other outlet developers on the mainland.

Planning for 20 New Malls

Sasseur opened its first mall in Chongqing in 2008, and armed with its new funding plans to add four more outlets this year. Within the next five years the developer is targetting 20 shopping centres nationwide.

Many analysts fear that China’s cities may be on their way to an oversupply of mall space and that developers may have overshot consumer demand. Dalian Wanda alone has opened more than 100 shopping centres in the last ten years, but recently announced plans to close or restructure at least 30 of its department stores.

According to a 2014 survey by Knight Frank, due in part to an anti-corruption drive by China’s government, most luxury retailers missed their targets for store expansions in 2013, and anecdotal reports since then have been increasingly negative regarding demand for luxury items.

However, Sasseur and L Capital are betting that outlets offering big brands at deep discounts will be the exception to the luxury rule.

“Outlet malls are countercyclical,” Sasseur’s founder and chairman Vito Xu was quoted as saying in the Journal account. “When retail sales fall, there is more excess inventory that needs to be cleared and more demand for bargain shopping.”

Sasseur Set to Compete with International Outlet Developers

While Sasseur is able to boast of strong performance for its malls to date, saying that sales have increased 30 percent per year since it opened in 2008, international developers are also busy building suburban shopping temples for luxury lovers.

US outlet developer Value Retail, which has developed and operates a chain of luxury outlet malls across Europe opened its first China shopping centre in Suzhou in April last year, and also has big plans for more malls in China.

Value Retail’s Shanghai outlet, located next to the city’s Disneyland resort, is expected to offer shoppers in China’s biggest city 50,000 square metres of discounted luxury brands when it opens in autumn this year, and the US company is targetting three more outlets in China within the next four years, with a total investment of around $450 million.

Another international company, Florentia Village, is building a chain of faux-Italian villages in China also offering discount luxury merchandise.

Florentia, which is invested by Silk Road Holdings, a joint venture of Gaw Capital Partners, Chinese-American investment group Waitex, Italy’s RDM, and TIAA Henderson Real Estate, opened its first outlet in Wuqing near Tianjin in 2011.

The private-equity backed mall developer is nearly ready to open a Florentia Village in Pudong, not far from the city’s international airport. Now Florentia has plans for more projects in Guangdong’s Foshan (also this year), Chongqing, Chengdu, Wuhan and Qingdao.