I had a debate with myself over what Chinese shopping complex in particular I should open this article with a description of — should I have chosen SM City Xiamen? K11, Xintiandi, or iAPM mall in Shanghai? New Century Global Center or Sino-Ocean Taikoo Li in Chengdu? Or maybe just any of the 185 Wanda Plazas that blanket the country? Then I realized that minus a few superficial architectural highlights, whichever I chose the description would have been more or less the same:
Around half of the shops were for buying food and drinks, there was a speckling of gyms and spas, a couple of English schools, play areas for kids, and a large movie theater which seemed to be the most popular location in the entire place. What retail establishments there were seemed to be devoted to big brand fast fashion, who lure people in with perpetual sales, and luxury goods, which seem to be more showroom than actual sales center. There were shop spaces dedicated to art exhibits, areas for public events, and a quaint, tree-lined outdoor promenade that resembled something like a cardboard cutout of a traditional small town commercial street.
The lifestyle center, art mall, experience-oriented plaza, whatever you want to call it, is now a staple in the Chinese brick and mortar shopping scene — a new staple where the word shopping itself almost needs to be enshrouded in the quotes of sarcasm.
“The traditional shopping mall isn’t really cutting it anymore in China,” said Warner Brown of JLL. “Department store and shopping mall landlords all know that they need to start focusing on their tenant mix or the products that are on offer, more on things that people can’t buy online: experience.”
The e-commerce driver
It is an understatement to say that the impact of e-commerce on China’s traditional retail establishments has been extreme. According to China’s National Bureau of Statistics, 15.5% of all retail sales, amounting to $752 billion ($610 billion tangible goods), were transacted online last year — up 26.2% year-on-year. Over 500 million people reportedly engaged in online shopping in China in 2016, and it’s becoming normal for even fast moving consumer goods, like toothpaste, to be bought online. By 2020, it is estimated that e-commerce sales in China will surpass those of the USA, UK, Japan, Germany, and France combined. In this fray, traditional shopping centers clearly need to evolve or go extinct.
The lifestyle center evolution
I remember reading an interesting study by JLL where their researchers stood at the doors of shopping malls across China counting the number of visitors who left with bags in their hands, and what they concluded tells the story of the country’s retail environment succinctly:
“We have observed that in a mid-range mall with typical tenant mix, a majority of shoppers leave empty-handed – this reinforces the idea that many people are going to malls to buy browse, socialize, and consume experiences rather than buy things.”
Since China began the process of reestablishing its commercial sector in the mid-90s, the country’s retail front lines have been in rapid transition. Local markets and small shops began getting outcompeted by large, quasi-Soviet style department stores, throughout the 2000s department stores began giving way to shopping malls, and now shopping malls are transitioning into what is haphazardly dubbed lifestyle centers.
“’Lifestyle centers’ really started getting some airtime around 2014 when ‘pioneering’ centers launched, such as Suzhou Village, which combined art and retail in a thoughtfully crafted Italian setting, Shanghai’s IAPM, which isn’t unlike New York’s Guggenheim inside, and Chengdu’s Global Centre bundling shops with a 300 meter-long indoor beach in the world’s biggest building,” explained Mark Tanner of China Skinny, a Shanghai-based consumer research firm.
Tanner points out five main drivers behind this transition:
1. 73% of Chinese consumers regarded shopping as a leisure activity, and roughly half thought it was among the best ways of spending time with the family, according to a 2015 McKinsey study.
2. The allure of the Chinese market has drawn retailers from around the world and a host of domestic players who are constantly raising the standards to attract shoppers.
3. Chinese consumers are maturing with higher expectations for experiences: they have evolved from just being satisfied with a functional shopping trip and now want something more.
4. Nine out of the top ten global cities for retail construction were in China, indicating that there is a significant amount of shopping center construction in the works, allowing room for the creation of new lifestyle centers. According to a JLL study, only 10-15% of China’s current stock of shopping malls are international grade, allowing plenty of room for future upgrades.
5. E-commerce. The ease of buying and browsing online, the sport of finding deals, has meant physical retailers have had to find a point of difference to be more attractive.
Where experience is king
The shopping experience in China is no longer about buying things — people can just do this online — it’s about spending time, it’s about rolling work, play, housing, dining, health-cultivation, education, and entertainment into the same environment. The typical “lifestyle center” in China is up to one-half food and beverage and can have cinemas, ice skating rinks, spas, gyms, children’s play places, language schools, bowling alleys, horse riding centers on the roof (no joke), indoor beaches, and amphitheaters and other areas devoted to public events. On top of that, many also have 30-story+ residential and office towers rising up from their roofs, making them into self-contained, mini-cites of sorts.
“You can see the transition taking place in lots of malls, including malls that have existed for several years,” Brown said. “They started out as traditional malls but are moving in the direction of a lifestyle center, and they usually do it by stripping out shops that usually go to fashion and they’re replacing them with children’s play areas, with more F&B, with more English schools, more spas, all of those kinds of things.”
Mark Tanner points out that amount of space that is now being allocated to food and beverage in most malls in China has increased by 20-35% over 2007 levels, with some developers like Wanda running shopping centers where 40-50% of the tenant mix is F&B related.
China is a country that has urbanized at such a rampant pace that “downtown” is often not the most centrally located place in the city. Hundreds of new cities, districts, and other newly urbanized areas have sprouted up in every corner of the country over the past few decades, and anchoring many of these new areas are massive shopping centers which basically serve all of the social, commercial, and recreational needs of nearby residents, essentially being one-stop shops where three generations can go and spend an entire day together. As Brown outlined:
The whole family gets there in the morning and mom and dad will do some light browsing and shopping while the grandparents will take the kids to the children’s play area and they’ll play on the slides and ball pits. They’ll reunite at lunch to have a casual dining meal, and then they’ll split up again while the parents go to a movie or go exercise while the grandparents take the kids to English school. Then in the late afternoon they’ll meet up again and get some tea or maybe go to dinner, maybe at night they go to a movie.
This has become the modern reality of the city dweller in China. While more and more tangible goods are being purchased online, there will always be a major demand for places to go and things to do. As shopping centers in China transition from being places that sell things to platforms that provide experiences, the major commodity that’s on offer is perhaps the most integral of all: places to spend time.