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Author: Jiang Sansui

In 2015, the average daily passenger flow in shopping malls across the country was 47,000; this figure dropped to 20,000 in 2023.

Today, shopping malls, as the highlight of China's retail industry, have gone through nearly three decades of development and entered an era of stock growth.

As more and more commercial buildings are being built, the popularity of each shopping mall is declining. Whether in Beijing, Shanghai, Guangzhou, Shenzhen, or second- and third-tier cities, many shopping malls are on the verge of closing down. In the four- or five-story buildings, there are only a few shops open, and most people who enter the mall just want to enjoy the air conditioning instead of shopping.

Oversupply,The mall is not as popular as before

The shopping mall business has become difficult, partly because there are too many shopping malls in the country.

By the end of 2023,The total stock of high-quality retail real estate in 21 major cities in China has exceeded 140 million square meters.You should know that the per capita shopping mall area in Japan and South Korea is about 1 square meter, and in Hong Kong, China is about 1.5 square meters, but the per capita shopping mall area in some second- and third-tier cities in mainland China has reached or exceeded 2 square meters.

From community shopping centers within three kilometers to core business districts covering the entire urban area, and even outlet-style shopping malls that attract consumers from surrounding cities, the ambition to expand shopping centers has long exceeded people’s desire for offline consumption.

Deloitte pointed out in its report on China's retail industry in 2024 thatFrom the third quarter of 2022 to the first quarter of 2024, my country's consumer confidence index continued to be at the baseline（100）the following.

Nowadays, compared to "earn money today and spend it today", putting money in the bank can give consumers "stable happiness".

byBank of ChinaFor example, the annual interest rate for demand deposits has been reduced from 0.35% 12 years ago to 0.15%, and the annual interest rate for time deposits has been reduced from nearly 4.75% to 1.8% over five years. However, at the same time, the total amount of RMB deposits of households in my country has increased year by year, reaching a record high of 13.6 trillion yuan at the end of 2023.

Consumers becoming more rational is not a good thing for merchants in shopping malls.

As a typical commercial property, shopping malls generally make profits by attracting merchants to settle in and open stores, and collecting their rent and property management and operation fees. As fewer and fewer people are willing to spend money shopping, the attractiveness of shopping malls to merchants has also declined.

As of March 2024, 40% of the 447 shopping malls surveyed by the China Chain Store & Franchise Association had an opening and closing store ratio below 1.

according toJones Lang LaSalleAccording to statistics, in the third quarter of 2023, the average vacancy rate of high-quality retail real estate markets in 21 cities in China was 10.7%, and the retail vacancy rate in second- and third-tier cities was at a historical high.

Even in Shanghai, which is known as the "consumption capital", the city's vacancy rate was 7.9% in the first quarter of 2024, higher than the average level in the past three years. The industry standard for shopping mall vacancy rate is generally 5%. For urban shopping centers, if they want to achieve 5A rating, the vacancy rate standard is less than or equal to 3%.

If there are not enough merchants, the shopping mall’s income will not be ideal.

In the 2023 fiscal year, the operating income of Wanda Commercial Management, the company behind Wanda Plaza, was 52.325 billion yuan, which was nearly 3 billion yuan more than in 2022.However, compared with the performance of over 100 billion yuan from 2017 to 2018, the size has shrunk by more than half.

In the first half of 2024,Swire PropertiesSales at five of its six mainland shopping malls fell, including a 4% drop at Beijing Sanlitun Taikoo Li and a 20% drop at Shanghai Xingye Taikoo Hui.

Today, domestic shopping malls of all sizes are looking for new growth and solutions due to the current situation of oversupply in the market.

Shopping malls with different positioning,Each has its own problems

In order to meet people's demand for "one-stop shopping", shopping malls often include supermarkets, personal care, clothing, catering, children's and entertainment and other business formats. However, shopping malls targeting different consumer groups and urban areas have their own considerations on the proportion of various business formats.

Generally speaking,In luxury shopping malls located in core business districts and targeting high-spending groups, luxury goods retail accounts for the largest proportion.

Beijing SKP, known as the "king of luxury stores in the world", has a retail business share of 87%, while catering and other businesses account for a relatively low proportion. In recent years, the Taikoo Li/Taikoo Hui series of shopping malls, which have gradually caught up with SKP, have clothing, beauty and other retail businesses accounting for 70%.China Resources LandFor its luxury-focused MixC series, the proportion of retail, catering, and entertainment has basically remained within the range of 60%, 25%, and 15% from 2019 to the present.

It can be said that the revenue of high-end shopping malls is almost entirely supported by the luxury retail industry, and catering and entertainment are just embellishments.

But nowadays, wealthy people have become cautious about spending on luxury goods.

LVMH（LVMH）Performance data for the first half of 2024 shows that the Asia-Pacific market(NoIncluding Japan)Revenue fell 10%, mainly due to the shrinking revenue in the Chinese market. Kering Group, which owns luxury brands such as Gucci and Balenciaga, also did not perform well in the Asia-Pacific region this year, with revenue falling 22% year-on-year in the first half of the year.

As luxury goods are cooling down in the domestic market, luxury shopping malls will naturally be affected.

Beijing SKP, which ranks first in the world in single-store sales and sales per square meter, had sales of RMB 26.5 billion last year.Although it still maintains its position as "the shopping mall with the highest revenue in the country", the sales growth rate has dropped significantly compared with the previous two years, from 30% to 10%.

The performance of Plaza 66, which is also positioned as a high-end luxury mall, is even more worrying. Sales data for the middle of 2024 showed that 5 out of 10 malls had negative growth, especially Plaza 66 in Shanghai, where sales fell by more than 20% despite a 100% occupancy rate.

At the same time, non-luxury shopping malls, where the retail industry accounts for a relatively low proportion, are also having a hard time.

Nielsen, an internationally renowned market monitoring company, pointed out in its "2023 China Consumer Insights and 2024 Outlook":The mid-end consumer market, which traditionally focuses on lifestyle and life experience, is facing increasing uncertainty in demand and income pressure.The products provided by companies are also facing pressure to reduce premiums.

For example, Wangfujing Group, which owns a variety of commercial real estate portfolios such as department stores and shopping malls, is facing a situation of falling revenue. The group's financial report shows that from 2019 to 2023,WangfujingThe shopping center's total operating revenue shrank by nearly 500 million yuan.

In order to retain popularity and increase revenue, these shopping malls have begun to increase the proportion of catering business.

In 2014, the industry generally believed that retail: catering: entertainment = 52:18:30 was the golden ratio of shopping mall business.Today, the catering industry has formed a 1:1:1 model with shopping and entertainment due to its advantages such as strong traffic-attracting ability, high customer stickiness and long stay time. The proportion of catering in some shopping malls even exceeds 50%.

Moreover, unlike before, catering brands are no longer only distributed on the top floors of shopping malls. They prefer to enter the floors of shopping malls in prime locations. Even some shopping malls have introduced catering brands to fill the retail gap in the most visible stores on the first floor.

But similar to the overall situation of shopping malls, the catering industry is also experiencing a crisis of oversupply and a lack of consumer retention. According to the query results of Qichacha,In the first quarter of this year, about 460,000 catering companies were deregistered and had their operations revoked in China, a sharp increase of 232.6% from the same period last year.

For most shopping malls, the myth of growth has long been gone, and the catering industry is just the last fig leaf. How to "survive" longer in the next elimination round is a proposition that every shopping mall in China is still thinking about.

forPlayers who insist on joining the game,What are you betting on?

Although the road ahead is long, many commercial real estate companies still refuse to give up.

From 2024 to 2027, China Resources Land plans to open 41 shopping centers;Longfor Group, and 11 new projects are expected to enter the market this year.It is mainly concentrated in first-tier and new first-tier cities.

In other words, the middle class and above who work and live in big cities are still the "treasures" of commercial complexes. These newly built shopping malls are betting on the size and consumption potential of this group of people in the country in the future.

McKinsey's report on Chinese consumers pointed out that by 2025, 209 million households will have an income of more than 160,000 RMB, reaching the middle-to-high income standard. Boston Consulting Group also made an estimate.By 2030, about 40% of China's population will be middle class or above(Excluding the emerging middle class)。

According to data from the National Bureau of Statistics, from the end of 2021 to the end of 2023, the per capita disposable income of the high-income group ranking in the top 20% of the population and the higher-income group ranking between 20% and 40% increased year by year.

At the same time, in the first half of 2023, domestic consumption has surpassed exports and investment.GDPIt contributed 77.2% to growth, even surpassing the level before 2019, becoming the absolute dominant force driving economic growth.

As long as there is development potential on the demand side, shopping malls will not give up expansion. Although the domestic shopping mall market has entered the inventory era, it is not yet monopolized by one or two leading companies.

Generally speaking, the concentration of an industry is judged by the "CR5 market share", which is the combined market share of the five largest companies in the industry.For the shopping mall industry, CR5 has been slowly climbing around 20% in recent years and has not yet reached the 30% level of developed countries.

Leading enterprises are still accelerating their layout, but the method is no longer the previous direct property holding, but a transition to a light asset model of selling operation and management services or brands. This trend can also be seen from China Resources Land's 2023 performance report: the revenue from operations is as high as 2.2 billion yuan, while the rental income is only 600 million yuan.

In addition, the financing environment for commercial real estate is also improving.

In 2023, the first batch of consumer infrastructure REITs(Real Estate Investment Trust)The launch of the project provides a new financing channel for shopping malls.

Local governments in various provinces and cities have also issued policies to support the development of business districts, such as the "Three-Year Action Plan for Improving the Capacity of Shanghai Business Districts"(2024-2026)” pointed out that it is necessary to attract state-owned enterprises and central enterprises that own land, property, capital and operation resources to join the fund, and expand the application of market-oriented urban renewal funds in urban renewal of commercial facilities.

Opportunities and challenges coexist. If shopping malls want to regain people’s minds, they still have a long way to go.

After all, if we don’t make more efforts, the shopping paradise will soon become a “social background board” where people only shop but don’t buy anything. A cup of milk tea, looking for delicious food on the fifth floor or B1, passing by the first floor to complain about the big brands, and then going to MUJI to guess the price, UNIQLO to touch the clothes, Chow Tai Fook to ask about the gold price, has almost become a universal template across the country - walking around the mall, and buying nothing.