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Outlet centres buoyant in China

Publication Date : 29-04-2012

 

Buoyed by China's growing middle class and people's desire for a modern lifestyle, property developers are leaving no stone unturned to cash in on the outlet industry.

According to media reports, more than 200 outlet centres have opened in China over the past decade.

To put this into context, the United States, where the concept of outlet stores has been around for decades, had 179 outlet centres by June 2010, according to US-based Value Retail News.

For many middle-class people in China, outlet centres have become a good place to buy quality products at a discount.

"I visit outlet centres several times a year to buy clothes for the next season," said Liu Jing, a white-collar worker in Shanghai.

"The discounts offered might not be as big as overseas, but they are better than at regular stores."

Products sold at outlets will normally be up to 50 per cent cheaper. Extra discounts might be given for purchases of more than one item at certain stores.

David Ng, executive deputy general manager of Shanghai Welead Investment Co Ltd, subsidiary of Pearl River investment group and the operator of MEGA MILLS Outlet centre in the Qingpu district of Shanghai, said the key factors that attract shoppers to outlet centres are the guarantee of genuine products and a comfortable shopping experience.

Many people might feel embarrassed asking for price information at regular retailers. People who are keen to know about a new brand might visit outlet stores as a starting point to learn about the brand, said Ng.

"Consumers will feel more relaxed asking about prices at outlets."

Success stories in China's outlets sectors include Beijing-based Yansha Outlets Shopping centre and Shanghai-based Bailian Outlets Plaza.

Yansha Outlets Shopping centre reported sales revenue of 2.5 billion yuan ($396 million) in 2010, a more than eight-fold increase from 300 million yuan in 2002.

Yansha was the first outlet centre to open in China in 2002. The new retail practice grew rapidly after Yansha made its debut, bringing hundreds of shops under one roof, usually outside a major city and near large expressway interchanges, rather than expensive city centre locations.

Experts said the growing middle class is one factor contributing to the success of outlet centre operators.

In addition, "for brand owners, outlets are an effective way to sell out inventory, without damaging their brand image in regular stores. In addition to global luxury brands, outlets are a good way for sportswear giants such as Nike and Li-Ning to clear heavy inventories," said Sherri He, a partner at consulting firm A.T. Kearney.

"For consumers, outlets offer luxury or famous brands at good value for money," added He.

Despite outlet centres having become one of the key sectors in the retail sector, the prospects for the development of outlet centres around China are not universally rosy.

At Lake Malaren Outlets in the Baoshan district of Shanghai, some stores have closed. On working days, sales assistants often outnumber customers.

Comments on dianping.com, an independent online platform for people to comment on service providers, suggest Lake Malaren Outlets is having problems drawing in the crowds.

In the cities outside Beijing and Shanghai, several outlet centres have closed in the past few years, including Kingcity Outlets Shopping centre in Qingdao, Shandong province.

"The development of outlet industry is faster than normal speed," said Ng from Welead.

An excessive number of outlet centres means there will not be enough branded stores to open in outlet centres.

"The main purpose for branded merchandise companies opening outlet centres is to sell short-supply goods or off-season products.

"According to international standards, one outlet store might be opened for every 10 regular stores," said Ng.

Ng said many branded companies, especially luxury goods companies, do not have many regular stores around China, so they will not be opening many stores in outlet centres.

Many small outlet centres facing the challenge of finding big brands owners have been forced to cooperate with some domestic companies.

"The key to outlet centres' success is to have enough branded stores to satisfy people's demand for luxury goods. It is impossible to run an outlet centre simply by working with domestic brands," said Qi Xiaozhai, director of Shanghai Commercial Economic Research centre.

"In large cities such as Shanghai, two or three outlet centres are enough," added Qi.

In China, development of the retail sector is not the primary interest for many property developers building outlet centres.

"Some developers build outlet centres in order to increase real estate prices, especially when the properties are located far from the city centre," said Ng from Welead.

"When all the properties are sold, the profitability of outlet centres might not be that important for outlet developers".

Developing in the Chinese market for more than a decade, the outlets business is well recognised by people. However, a gap still exists between the Chinese and foreign markets. Many people complain that many products on offer at outlet centres are unfashionable and not that cheap.

"Product channels are limited and outlet centre operators have to buy products from distributors instead of directly from brand owners like most outlets in mature markets, which results in fewer products and higher purchasing costs," said He from A.T. Kearney.

Looking forward, outlet centre development projects remain attractive to investors and more will be built in China.

Bailian Group, the Shanghai-based retail conglomerate, reportedly said that it plans to open a total of 10 outlet centres by 2014. The MEGA MILLS Outlet centre managed by Ng's company is projected to become operational before October.

 

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