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Nov
2013

The future of luxury retail in China, consumer habits and disruptive technologies

New challenges bring new thinking. China is a country of constant change, presenting those who are based here with both the challenge of coping with them, the opportunity to think differently about how to do this. We start a new series in this month’s Luxury Insights China called The Thought Leadership Essay, where we ask experienced practitioners working in China to give us their vision of how a particular sub-sector or attribute of the market will develop over the coming years. This month, we have asked our own publisher Ken Grant his vision of the luxury retail sector in China, and the interconnection between physical stores and electronic/mobile developments.

The rate of change of everything related to the Chinese economy has by any standards been phenomenal, and for those of us based here we see these changes each and every day particularly in the very visible retail sector. The Chinese have naturally taken these rapid changes in their stride, adapted to them and integrated them into their daily lives, as they have digital and mobile technologies which for many are the centre of their world. One only needs to acknowledge the expansion of mobile coverage, or watch people constantly using their phones and tablets on the street, in coffee shops and bars, or in shopping malls, to realise that these are very well connected and tech savvy people.

Over the past 12 months, I have also watched and mused over the continued openings of luxury shopping malls. Like a huge oil tanker at sea, slowing down or changing direction for a shopping mall once the momentum has been established must be very difficult, and there must be a significant element of faith amongst the developers/owners that the space can be leased even under the slowing market conditions. In their 2013 retailer survey, property agents Savills reported that of all those they interviewed, 71% said their expansion plans for the year in China were ‘aggressive’, and 95% were concentrating on their current core locations rather than expanding more broadly across the country.

But even before these new malls had been opened there was already a great deal of existing retail space available, certainly in the major Chinese cities. There to satisfy most of the well established brands, and those in the process of entering the market. The presumption that there would be a continual in-flow of retailers wanting to take the space and, as importantly, that the growth of the luxury sector in China would continue at its then meteoric rise was surely short sighted by many developers? It wouldn’t have been that hard to foresee a cooling of the luxury fervour, because it realistically could not have continued at its previous rate. Having said this, the greatest challenge is for those malls not in the main shopping areas of major cities, but in locations that are more remote or those in lower tiered smaller cities. As the Savills data indicates, only 15% of retailers questioned in their survey were currently considering expansion into emerging locations. So do these become ghost malls, void of tenants and consumers?

The past year has also seen many luxury brands going through a period of adjustment; a time when they aim to improve the ROI they have already made in their retail networks, to leverage existing space and systems and to retain existing customers and as importantly, win new ones. Their positions remain under threat from new entrants, well-established competitors and above all, from digital technologies and rapidly changing consumer knowledge and attitudes. Brands must now be more flexible, reactive and creative in the ways they engage the consumer, and for some this is not an easy ask. The retail space in China is changing fast, from top to bottom, from physical to digital.…

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