The Maosuit was in Hong Kong (HK) this week and, as always, took time to visit the major luxury malls and retail districts. HK has been an international shopping destination for decades and for the last few years has even won the accolade of being The World’s Top Destination for Luxury brands.
There are currently upwards of 50 new luxury malls currently being built across China to tap into rapidly growing luxury goods market, yet very few of them will come anything close to the standard of the luxury malls developed in HK over the last few years. So what is it that HK real estate developers know and get right that the Chinese don’t, and what can be learnt from this situation?
Fundamentally, the single most important factor in determining the success of a mall is how many consumers go there (‘foot traffic’). For a luxury malls, foot traffic plus the ‘quality’ (income level) of consumer is the determinant factor for success. The one thing that stood out about all the HK malls I visited was that they were always busy, meanwhile in Mainland China most of the luxury malls are often empty.
What the HK developers do so well is that they create mixed-use shopping malls that encompass retail/entertainment/catering/office/hotel and transport facilities all into one development. Essentially what this does is create an ecosystem of real estate that brings masses of people to the mall everyday and easily translating into sales. So why aren’t these types of developments being built in Mainland China?
As covered in this post on successful luxury malls in China, many Chinese developers are state owned entities and there is simply a lack of planning and consultation done prior to building the mall. The government will designate a piece of land for development and someone will just decide it will be a luxury mall. Ask any shopping developer in China and chances are their dream is to build a luxury mall. The way they think is: “if Chanel opens a store in my city, it shows we are modern, successful and have status”. Often these mall developers will rush out and contract architects then design and build a mall before even talking to a luxury brand, consulting retail experts or ever taking into consideration what criteria is needed for a luxury mall to succeed.
On a larger scale what this boils down to is lack of coherent city planning. In Chinese second tier cities its common for China’s government agencies compete with each other to develop land and retail projects. Therefore you can have two separate mall developments in one city that are both run by state owned enterprises and have government backing. Both then compete for the resources and try to lure the luxury brands into the mall. Imagine you are a luxury brand and two different developers approach you claiming to be from the XYZ city government and building the new best mall in the city. Who do you believe, where do you put your investment?
An intelligent developer thinking of creating a luxury mall will first enlist the expertise of a real estate consulting form such as Savills or CBRE. These companies can do detailed studies into locations and advise not only on the design of the mall, but also what composition of retail, residential, office and hotel facilities would be needed for the mall to succeed in that given city or location. HK developers always do diligent planning and consultation prior to launching their projects.
Chinese shopping mall developers interested in building a new luxury mall would do well to visit HK and spend time really understanding what it takes to be successful in creating a luxury retail platform. They should also enlist a professional real estate or retail consulting firm to advise on best practices and conduct surveys and design consultation with the luxury brands they are trying to entice. Hopefully this will start to happen sooner rather then later and China can begin to enjoy the high standard of malls and city planning that HK does.