SHANGHAI — As many as one-third of China’s shopping malls are set to close within five years due to a serious oversupply of structures throughout the country, according to a new state-sponsored report.
This story first appeared in the September 14, 2016 issue of WWD. Subscribe Today.
China currently has more than 4,000 shopping malls, compared to 1,100 enclosed malls in the United States as of 2014, according to data from the China Academy of Social Studies (CASS) Institute of Finance and Economics Strategy. The report predicts a major overhaul of China’s mall landscape to realistically reflect demand. A great many of those in the planning stage are destined never to open and the remainder are set to become joint wholesale and retail marketplaces, or integrated online-to-offline centers, according to CASS’s forecast.
A further 7,000 malls are slated to open in China by 2025, according to estimates provided to CASS by China shopping center industry forecasters.
The rapid growth of e-commerce is eroding business at traditional brick and mortar retailers in China. Retail e-commerce sales, excluding travel and events tickets, rose 42.1 percent in 2015 to $672.01 billion, easily making China the world’s largest e-commerce market, according to figures from eMarketer.
“Shopping malls need to integrate with e-commerce rather than remain at the receiving end of its shock effect,” the CASS report said.
Those that survive will be those in good locations, mainly in first and major second tier cities, CASS said. The government institute said the malls that survive will offer a combination of retail, food and beverage, as well as diversified entertainment and child-friendly services.
The oversupply of malls in China is largely due to regional governments, which are notorious for encouraging developers to open prestigious mall projects in exchange for residential retail permits, with little thought for the chance these retail properties have of finding success.
The CASS report urges local governments to be prudent in approving commercial real estate projects.
Mall developments in China’s industrial northeast provinces, such as Shandong and Liaoning, are most at risk, according to the report. These areas are traditionally reliant on heavy industries that have seen growth slow with the nation’s economy.
While China’s shopping mall infrastructure outstrips consumer demand, there are encouraging signs that the overall Chinese economy is improving. Industrial production rose 6.3 percent year-on-year in August, according to China’s National Bureau of Statistics, up from 6 percent growth in July.
Meanwhile, retail sales in China also rose a better-than-expected 10.6 percent year-on-year in August, according to NBS. This growth is impressive, as it comes off a high base. But it has slowed significantly from the heady days of 2011 and 2012, when it would be normal to see growth rates of 17 or 18 percent.