China's retail split: LV's luxe ship vs a phantom cafe

Shanghai's Shopping Mall Landscape: A Mixed Picture

Key Concepts:

• Vacancy Rates: Percentage of unoccupied retail space in malls.
• Average Asking Rent: The average price landlords are asking for retail space.
• Debut Economy: Government strategy to attract flagship stores and new concepts.
• Footfall: The number of people visiting a location.
• Retail Mix: The variety of stores and services offered in a mall.
• Emotional Stickiness: Creating a routine or emotional connection to encourage repeat visits.

Current State of Shanghai's Malls

• Mixed Performance: While Louis Vuitton's flagship store is thriving, many Shanghai malls face challenges. Some are crowded, while others are nearly empty, even with prime locations.
• Vacancy Rates and Rent: Q2 figures from Cushman and Wakefield show flat vacancy rates for mid to high-end retail property, but average asking rents decreased by 1.4%, indicating weakening demand.
• Example of Struggling Mall: A relatively new downtown mall connected to two subway lines remains largely empty six months after opening, despite high foot traffic from commuters. The owners even created a fake cafe to mask the emptiness.

Government Intervention: The "Debut Economy"

• Encouraging Flagship Stores: The government is actively promoting the "debut economy" by attracting flagship stores and new concepts.
• Louis Vuitton Case Study: The approval process for the LV flagship store retrofit was expedited (2 months to 1 week), and surrounding areas were renovated to accommodate it. This demonstrates the extent of government efforts.

Luxury Spending and Its Impact

• Luxury Spending Decline: Bain & Company estimates a decline of 18-20% in luxury spending last year.
• LV Flagship Impact: The LV store has increased footfall in its luxury mall, benefiting nearby businesses like Starbucks and restaurants.
• Potential Drawbacks: A consultant notes that high footfall doesn't always translate to sales, especially if the "wrong crowd" is attracted, potentially turning the mall into a marketplace.

Success Stories and Strategies

• Plaza 66: Despite declining retail sales, Plaza 66 has zero vacancies and a waiting list for brands like Prada. They are even building a new wing.
• Exclusive Lounge: Plaza 66 attracts high-spending customers with an exclusive, invitation-only lounge requiring significant spending to qualify.
• Janice (Director of Mainland Operations of Plaza 66): "Waiting list." (referring to the demand for space in Plaza 66)

Adapting to Changing Consumer Behavior

• Online Shopping: The rise of online shopping is a significant factor affecting brick-and-mortar stores.
• Socialization and Experiences: Malls are adapting by targeting the need for socialization, especially over meals.
• Targeting Families: Malls are attracting families by creating children-friendly spaces like urban beaches and playgrounds.
• Tenant Mix: Malls are incorporating enrichment schools (English, dance, skateboarding) to attract parents and children.
• Pet-Friendly Amenities: Malls are catering to pet owners by providing pet strollers, drinking stations, and pet walk areas.
• Sports and Fitness: Malls are including gyms, basketball courts, and rock climbing walls to attract sports enthusiasts.
• Mingi: "So what they are trying to do is to build like emotional stickiness towards like the mall because it builds up a routine."
• Car Dealerships: Over half of Shanghai's malls have at least one car dealership, aligning with the aspirational lifestyle that higher-end malls aim to sell.

Conclusion

Shanghai's shopping mall landscape is complex, with some malls thriving while others struggle. Government intervention, changing consumer behavior, and innovative strategies are shaping the future of retail in the city. Malls are adapting by offering unique experiences, targeting specific demographics, and creating a sense of community to remain relevant in the face of online shopping.