SHANGHAI — Value Retail’s opportunity in China lies in capturing emerging middle- and upper-class consumers who are seeking access to luxury goods but are not yet able to afford full-priced products in high-street stores, Burt Tansky, vice chairman of Marvin Traub Associates and the former chairman and chief executive officer of the Neiman Marcus Group, said while on a trip here this week.
This story first appeared in the June 18, 2014 issue of WWD. Subscribe Today.
Tansky is a strategic adviser to Value Retail, the developer of the nine Chic Outlet Shopping Villages in Europe, which is also developing two outlet malls in China. Suzhou Village, the first location near Shanghai, had its soft opening in May and will have its grand opening in October. The second property, Shanghai Village, is located on the now-under-construction site of the Shanghai Disney Resort and will open next fall.
“Outlet malls are very good for brands because it allows people who know the brand to understand it and appreciate it but cannot afford it [full-price] yet,” said Tansky, who was in town touring Value Retail’s properties as well as other outlet malls in the area.
“They can enter the brand at a lower price, and as they move further up the economic scale, they will move to the full-priced brand,” he added. “I think the customer the Villages are aiming for will clearly come out and shop. I think word will spread very quickly that it is different and very special.”
In addition to visiting retail locations, Tansky met with a number of brands that have opened or are planning to open in Value Retail’s locations. He said one overarching theme from tenants is the need to have ample food and beverage offerings. “It seems to be an important piece,” he said. “They feel the Chinese consumer wants to be able to come and spend the day, have lunch and dinner. We keep hearing the Chinese consumer would appreciate that.”
As for potential risks in the market, Tansky said oversupply of retail space is a concern. “You can’t build malls every thousand feet and expect everyone to prosper, so I think that is one of the great risks,” he said. “But I think it is a risk in any category.”
During a trip to Shanghai in April, Scott Malkin, founder and chairman of Value Retail plc, said there are plans to build up to seven outlet malls in China. He said Suzhou Village will be aimed more at domestic tourists while the Shanghai development will have more of an international orientation, aiming to capture Chinese and overseas visitors.
“Shanghai Village is meant to be an Asian hub while Suzhou Village a Chinese national hub,” he said. “They will naturally complement each other. Certainly the brands see it that way.”
Malkin said while most brands are enthusiastic about the Village concept entering China, there is a certain degree of schizophrenia among those in the market where various factors, ranging from government policies to changing consumption habits, have resulted in a much different competitive landscape from only a few years ago.
“Some brands want it now. Some might think it might be a waste of time,” Malkin said.
“Every decision is painful and cautious compared to two years ago where you just did more because you did not have time to think. Now you really have to have a business here,” he continued. “They are in a period of transition, so on the one hand, we are embraced, but on the other, we are just another headache. We are about surplus so always a bad news story, and we are here to give them a service for something they don’t want to think about if they can help it. But they have to think about it. They have to set up and run their businesses as powerfully and as sophisticated as they run them in Western countries.”
As for up-and-coming luxury markets, Tansky said he feels like China is here to stay but that other hot spots to watch include Vietnam, India, Thailand and Africa.