Chinese retail landlords rise to the challenge of e-commerce

China’s retail real estate arena is the fastest-developing market in the world – forcing landlords to change their strategies to meet the challenge of e-commerce.

July 19, 2018

When it comes to mobile shopping, 30-minute delivery and customer apps, China leads the world. Around 20 percent of China’s retail sales are online, placing it ahead of the UK, U.S. and South Korea, the other nations where e-commerce is most entrenched.

And landlords are having to move fast to adapt to the new online/offline norm.

“China is leading the world when it comes to blending online and offline retail, to the extent that in a few years’ time, those terms will leave our vocabulary,” says James Hawkey, head of retail for China at JLL. “We are moving to a world where all retail transactions will be internet-influenced.”

Hawkey notes the historical definition of “online” and “offline” revolves around the place of transaction, something that is becoming increasingly unimportant. “People may go to a store to try something on and then buy it online for home delivery,” he says

Chinese companies have been ahead of the curve when it comes to successfully blending online and offline retailing. In May, Dalian Wanda Group teamed up with tech firms Tencent Holdings and Gaopeng for a new online/offline retail joint venture.

The new partnership aims to give Wanda’s shopping malls a “comprehensive digital upgrade”, improving connectivity between stores, malls and customers. Wanda hopes the initiative will bring “enormous online traffic through WeChat and other platforms”, which in turn will bring more physical traffic to its 236 Wanda Plaza shopping centres.

Developer Chongbang has taken a lead on linking online and offline businesses. Its latest LifeHub malls in China have online fulfilment centres, where customers can pick up, try on and return goods they have ordered online. Chongbang has been bringing previously online-only brands into its malls, with what it calls its O+O (online plus offline) programme.

Hawkey also cites Alibaba, the online retail giant, which is moving in a significant way into physical retail, with initiatives such as its Hema supermarkets. Alibaba came up with the phrase “New Retail” to describe the step beyond an either/or approach to online and offline retail. Hawkey says the key is the interaction of “people, product and place”, whether that place is physical or virtual.

He also believes that retailing will become more ‘event-based’ with brands tailoring events and promotions to their community, which will be developed online and offline.

The landlord challenge
In response, shopping centre owners need to “create an amazing environment where people want to spend their time,” says Hawkey. This means focusing on design, landscaping and air quality (the latter being crucial in China). A mall’s interior space needs to have a level of flexibility, which can serve brands looking to run special events, or for the centre’s management to organise their own.

For the China retail owner, tenant mix will become increasingly important, says Hawkey, in order to provide an offering which truly serves the need of its demographic; just leasing up the space as quickly as possible is no longer enough to be sustainable long term.

China shopping centres also need to integrate their online and offline presence and use customer data intelligently in order to bring people to malls for targeted events and offers. “You can’t just say roll up, roll up, one and all!” says Hawkey.

However, real estate fundamentals such as location and design cannot be overlooked. “Most of China’s large cities have districts with some oversupply,” says Hawkey. “Prospective new owners of a shopping centre might see problems with management and leasing, which can be rectified, but it is far harder to improve a mall which is poorly located or designed.”

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