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The Expansion of Outlet Malls In China

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Posted on June 26, 2014 in Blog By Was Group

The recent economic slowdown in China has caused a decline in sales of high-end goods and luxury items. The market known for its love of brand names and status symbols has caught on to another trend, though. Outlet malls are starting to pop up across the country, and they are thriving.

What’s Causing The Demand For Outlet Mall Development?

A growing cohort of white-collar middle class workers has emerged in China in recent years. This group’s rising disposable income, coupled with their increasing brand consciousness due to luxury brands expanding their presence in Mainland China, has led to a growing demand for high end goods. Still price conscious, the Chinese middle class are flocking to outlet malls to get the goods they want at prices they can afford.

Chinese consumers have been shopping at international outlet malls for years. According to European discount luxury outlet chain Value Retail, three out of four Chinese tourists to the United Kingdom visit their outlets in Oxfordshire. Since not all Chinese consumers are in a position to fly to the UK, Paris, or the US to do their shopping, it makes sense that this model is catching on at home in China. China's largest outlet mall recently opened in Wuxi and is modeled on discount outlets in the eastern US.

Why China is Prime for Foreign Investment in This Area

Whereas this model has been around for years in Europe and the US, China is in the initial stages of outlet development. This presents challenges for domestic operators. Retailers want to do business with foreign operators that they can trust and have done business with before, making it difficult for domestic outlet malls to attract the top brands that Chinese consumers want.

Mismanagement by domestic operators is also hurting the market. Domestic operators are only interested in attracting big brand names, but are not taking interest in managing the centers afterwards. There seems to be little interest in making them successful or appealing to the market. This has resulted in some confusion about what an outlet center actually is, as many operators allow stores that don’t really meet the criteria. Proper management is needed to make these centers really flourish.

What Obstacles Exist

The luxury import duties to sell in Mainland China can end up costing upwards of 50% more

than the US. Hong Kong doesn’t have these taxes but land is incredibly expensive. This presents a challenge for retailers and hurts their profit margins.

Extensive market research is needed, as consumption habits are different from city to city. If the city’s average income is a bit lower they may not support the typical luxury brand consumption as other Chinese cities, and even the most famous international brands could fail. Developers and retailers need to do their homework before entering the market.

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