Shopping Centres Go Social to Attract Chinese Consumers: China Mall 2020

This post is part of a series highlighting content in Mingtiandi’s China Mall 2020 white paper. Find out more about this retail research report here.

The expansion of China’s online retail sector, which grew to RMB 12.3 trillion ($1.9 trillion) in 2014, has led many observers to predict dire consequences for bricks-and-mortar commerce.

However, despite the impressive growth of Taobao and JD.com, in 2014 retail sales at China’s shopping malls also increased by 7.7 percent compared to the previous year, according to data from the Ministry of Commerce.

The continued increase in both online and offline retail suggests that China’s shopping centres still have a role to play in the country’s retail development. However, the expansion of leisure time for the country’s middle class, along with the popularity of online shopping, is putting a premium on the social value of offline shopping and retail spaces.

Weekends are for Window-Shopping

Offline shopping continues to flourish in China in part due to its vital social function. Guangjie, which roughly translates as window shopping, has become a primary pastime for many of China’s newly affluent consumers.

In communities that lack adequate public spaces such as parks, gyms, and other activity areas, malls have quickly become popular meeting places, particularly in China, where homes are smaller and multi-generational living is common. They also have become destinations in themselves, drawing in people to enjoy a day out and fill their leisure time.

“Malls have evolved from prosaic boxes accommodating shops with functional circulation through to lifestyle centres with greater integration of F&B and entertainment, public spaces, and often day-lit arcades designed to maintain a longer dwell time, enhanced consumption, and keeping shoppers in a browsing trance”, says Christine Lam, Executive Director of global architectural firm Aedas. “They are palaces of consumption.”

The importance of shopping as a social activity in China is backed up by research from McKinsey. The firm’s survey of Chinese consumer attitudes finds that 73 percent of respondents regarded shopping as a leisure activity, and roughly half said it was “among the best ways of spending time with the family.”

Online Retail Bringing Social Shopping to the Forefront

The phenomenon of shopping as a social activity has become more important as Chinese consumers use online sources for many mundane purchases but turn to shopping in malls for a different set of experiences not available online.

“The growing effect of online retailing requires malls to evolve from a palace of consumption to palaces of experience,” says Lam. “Moving away from the globalised ubiquitous retail environment to the creation of unique experiences by various means of implementation of tenancy mix, retail planning, spatial character, use of function, social, and cultural response.”

“The retail experience is becoming less and less about buying a product and actually taking away the product but the experience that you’ve gone through of actually going into the mall,” says James Macdonald head of research for China at Savills. “Being able to experience new things, having these retailers going out to public spaces and actually bring in consumers gives the consumer better environment and exposes them to more things and is more likely to get them to actually shop in the stores.”

Making Malls Fit the Community

With real estate consultancy JLL estimating that 40 million square metres of new malls will open in China over the next three years, developers and designers are having to work harder to ensure that their new project dovetails with consumers trends, and with the local community.

“You’ve got to have an identity that is particular to the location, to the people, the shoppers – everything,” says Trevor Vivian, Global Director and Hong Kong Studio Head at architectural firm Benoy.

The global design firm, which designed Shanghai’s popular iAPM luxury mall, looked to incorporate such details as landscaped terraces and elements of the city’s traditional Shikumen architecture into the shopping centre along Huaihai Road.

Other elements of the neighborhood included in the 130,000 retail destination include rows of “dining boxes” carved into the street front of the seven-storey structure. These boulevard-style terraces, which are woven among landscaped gardens, allow retailers to re-create street-front cafes in upper floor retail space that faces the city’s Xiangyang Park.

Dining Space Takes Over More of the Mall

The emphasis on designing appealing dining spaces at the iAPM is not surprising considering the growing role that food and beverage outlets play in China’s shopping malls.

On average, data from agencies shows that malls in China on average set aside 30 percent to 40 percent of their gross floor area for food and beverage, up from 10 to 15 percent before 2007.

For some developers, such as Wanda, allocate between 40 percent and 50 percent of the total retail area for social aspects, and Chinese government-backed developer COFCO Land, which develops and operates the Joy City chain of malls, up to 40 percent, according to research by BNP Paribas.

For underperforming malls, the percentage for food and beverage can reach as high as 60–70 percent.

Guohua Jean Zhang, Managing Director, China at developer Taubman Asia which is developing shopping centres in Zhengzhou and Xi’an, China points out that with Chinese malls often being integrated with housing projects, the higher rate of food and beverage and entertainment space is natural.

“In the last 15 years, Chinese shoppers have experienced major changes to their shopping environment, from retail under a traditional department store model to a shopping centre model”, explains Zhang. “The resulting rise in mixed-use developments – meaning real estate projects blending residential, office, and commercial use – has spurred mall operators to combine shopping, dining, and entertainment options under a single roof and this has consequently become a central part of the Chinese lifestyle.”

However, even with the rise of mixed-use projects, Zhang pointed out that malls that rely on dining venues for over 50 percent of their leased space are often the result of poor planning.

Social Shopping Creating Bigger Malls

The result of more dining in malls, along with other social elements, is that China’s shopping centres have begun to grow ever larger, especially as developers begin creating more open spaces for non-retail activities, which are increasingly relied on to generate foot traffic.

“We’re saying that the public space is actually an anchor now”, says Vivian of Benoy. “It could be an outside space like the old town square in Italy. But things need to happen in there all the time. There needs to be something new happening there, and it brings people to the area”.

According to JLL research, the average size of new shopping malls in Shanghai alone has doubled over the past 15 years, from 40,000–45,000 square meters to 90,000 square meters today. On average, mall sizes across China are 95,000 square meters, at least 30 percent larger than other countries, and some bigger malls can reach 200,000 square meters or more.

“Malls are typically changing the tenancy mix to increase the percentage of F&B and entertainment, both of which require larger areas than traditional shops,” explains Lam of Aedas.

Changing Stores Mean New Mall Designs

Another force driving demand for larger shopping centres in Asia are changes in the format of retail shops, which are at least partly of a result of the rise of ecommerce.

“Compared to those of 10 years ago, China malls are entirely different,” says Zhang of Taubman Asia. “The market for mini-anchors has grown dramatically. The scale of the mall dedicated to anchor stores, e.g., department stores and supermarkets, has been in decline while the overall number of such stores has also fallen.”

Earlier this year Chinese retail developer Dalian Wanda anounced that it would close nearly half of its own department stores nationally, and Malaysian department store chain Parkson has also been closing outlets in China.

The former function of these catch-all outlets where consumers could purchase all necessities in a single place has been quickly replaced by online marketplaces such as Alibaba’s T-Mall where consumers can take advantage of greater selection and convenience.

However, as Chinese consumers gain greater knowledge of global brands, and look for physical venues to explore new products, the demand for flagship stories and “mini-flagships” devoted to a single brand has risen.

The growing demand for these larger showcases, along with the need to control costs, has led more tenants to open multi-level stores, which rely on smaller footprint of prime first-floor space, while still giving brands adequate space to display a variety of products.

Mall developers have been quick to jump on this trend, with major shopping centres such as the iAPM and Shanghai’s Kerry Centre mall all incorporating a large number of multi-level units for large brands.

Mingtiandi’s China Mall 2020 report was sponsored by Taubman Asia. For more information about the project, or to download the full report, just click here.