Can big new splash in retail sway buyers?
Eric Chan sits cross-legged on a leather couch, gazing out on the view from a window of a 28th-floor lounge that overlooks Shanghai’s bustling tourist spot Yuyuan Garden and the nearby Huangpu River.
“I’m certain that the Bund Finance Center will become a new commercial landmark in this city,” he muses, while sipping coffee from a porcelain cup in the center.
The Bund Finance Center is a large commercial complex built, owned and operated by Shanghai-based consortium Fosun Group. The 420,000-square-feet multiplex of retailing, offices, hotels, entertainment activities, fitness salons, art galleries, eateries and health-care facilities officially opened on December 12.
Before joining the center as its chief executive, Chan had close to 30 years’ experience in upscale commercial property management, ranging from running shopping malls to operating office buildings and hotels.
“China’s commercial property market is near saturation,” he told Shanghai Daily in an interview ahead of the center’s opening ceremony. “The Bund Finance Center is poised to make a splash and disrupt the local competitive landscape.”
According to him, traditional shopping malls and department stores have steadily lost their shine as consumers demand something richer than just a place to make purchases. As a result, mall operators are seeking to win back customers, especially millennials, by turning their facilities into lifestyle experiences and even adding art to the mix.
According to a 2019 Nielsen report on Chinese consumer and retail trends, the increase in average disposable income and rising consumer expectations for quality products in major cities have cut into the mass-marketing merchandise on offer at traditional malls.
In line with this shift, consumer preferences for niche brands and unique experiences have kept pressure on brand owners to broaden their categories of goods and services at a faster clip, the report found.
Chan said he is riding this trend to appeal to China’s more discerning middle-class shoppers. With a track record of successfully enriching commerce with a blend of art, fashion and culture and by courting customers on the lookout for an enhanced experience, the Hong Kong-born businessman said he expects to pull off the same feat with the new center.
It hosts about 200 establishments, including luxury brands like French fashion house Lanvin, which is currently putting on an exhibition at the center to mark the company’s 130th anniversary.
The new center has leveraged the connections of its parent Fosun Group, bringing exotic merchandise from abroad, such as authentic Kyoto-style handicrafts, ornaments and other household items, in a quest to woo fans of Japanese craftsmanship. “We don’t operate like an ordinary department store or shopping mall,” said the businessman. “Selling a luxury good isn’t our goal.”
He paused and then said, “Our goal is to showcase a lifestyle covering every aspect of a customer’s shopping experience.”
The twin-tower structures of the center, standing 180 meters tall, function not only as a shopping center. They also are home to numerous offices, hotels, art galleries, independent design brands and other services. As Chan explained, the center’s all-in-one layout is in line with Fosun’s core concept of building an ecosystem that revolves around family activities.
“To put family at the heart of what we do is to catch up with a broader trend facing the shopping centers of tomorrow,” said Chan, who is also chairman of Yuyuan Culture Business Group and vice chairman of Fosun Fashion Group.
Chan said Fosun’s wide network of investments spans half the globe and could solidly underpin the fledgling center as it embarks on competition with more established rivals, like ifc and iapm.
For example, couples who want to be freed from parenting duties for half a day can sign up their children for Miniversity, a day-care brand under Club Med owned by Fosun. They can also entrust their pets to Pet Wishes, a pet care store, while they are away for a bite to eat or at the movies.
Chan’s optimism is due, in part, to the fact that China is grappling with a plethora of cookie-cutter shopping centers and department stores.
In the first 11 months of 2018, the ratio of newly added commercial property space to actual areas sold rose to 1.78, up 3 percentage points from the same period a year earlier, according to a study by China Index Academy, a market intelligence researcher. A reading over 1 indicates glut.
The study also pointed out that the industry is in the throes of inventory cutbacks. In recent years, as sales of commercial property continued to slide, investment in and construction of new malls have slowed. In the first 11 months of 2018, investment in commercial real estate development plunged about 10 percent year on year to 1.85 trillion yuan (US$264.3 billion).
Even in second-tier cities, where relaxed local government policies on rigid household registration systems have paved the way for an influx of new inhabitants, bubbles in the commercial real estate sector have yet to be adequately absorbed.
Commercial property management firm Cushman & Wakefield has published data suggesting that top-class office buildings in Hangzhou, capital of Zhejiang Province, had a vacancy rate of about 15 percent in the first quarter of this year, up 3.5 percentage points from the previous quarter.
The rise of e-commerce has compounded the woes of traditional brick-and-mortar retailers, forcing some to cope frenetically by promising to deliver a more integrated online-offline shopping experience.
But as Chan of the Bund Finance Center sees it, these efforts could come to naught if mall operators continue to behave like rent collectors, intent on assigning commercial space to the highest bidders. There’s a risk that such zeal will produce tenants that don’t fit into an integrated commercial vision.
“Ordinary malls accustomed to maximizing rent income have neither the resources nor incentives to help merchants run their businesses well,” he said.
There are signs that rent collection, a key driver of revenue for mall operators, will have to cede ground to more innovative ways in engaging with customers and increasing foot traffic.
“Malls have to be inventive to satisfy market needs,” Cai Yun, secretary-general of the Business, Culture and Tourism Property Committee of the China Real Estate Association, told an industry event in November. “An excess of look-alike malls with their almost identical mix of businesses is increasingly becoming obsolete amid the cut-throat competition.”
She said malls need to differentiate themselves, and one way of standing above the crowd is to cater to the individual characteristics of consumers.
The shopping center of the future, according to her vision, will be a place combining immersive experiences and digitization. It will attract and retain customers by delivering rich experiences that are not available from online vendors.
“In a word, shopping malls need to become an ideal shopping, recreational and entertainment ‘resort’ that customers keep returning to in search of exciting new discoveries,” said Cai.
Her vision has played out in the strategy adopted by the Bund Finance Center. The line separating merchants and tenants is blurred. A number of merchants are owned by or affiliated with Fosun. Chan said his team has a natural incentive to help them thrive and retain their consumer appeal.
He chose to sign shorter leases with tenants — normally less than five years — to be able to weed out more quickly those given the cold shoulder by shoppers. “We’ll let customers vote with their feet,” he told Shanghai Daily.
In addition to proprietary brands and assets, Fosun also has contributed troves of data to guide center executives like Chan in their decision-making. Through customer profiling powered by big data analytics, Chan said he can now predict new trends in consumer preferences with higher accuracy.
Emerging technologies, such as security and logistics robots and computer vision will give Chan a helping hand in running the center. But the human touch won’t be lost.
“We will try to acquire returning customers by offering premium services,” he said.