New | Outlet malls booming in China as department stores feel the pinch

Designer outlet malls are sprouting up all over mainland China, even as department stores find themselves struggling amid a slump in retail sales.

At least 17 new outlet malls are scheduled to open in China in the second half of 2016, according to a report by Outlet Sight, which tracks the industry. Some developers are betting on outlet malls because they typically offer off-season or factory excess goods priced at a discount to the in-season products sold by the same brands in department stores.

“We think designer outlets are more defensive than high-street retail,” said Chris Reilly, Asia-Pacific managing director at TH Real Estate, a property fund that manages nearly US$100 billion of real estate in Asia, Europe and the US. “Their fundamentals are better in terms of supply and demand.”

China’s department store sector has been battered in recent years by sluggish sales growth and declining profits, with store closures intensifying since 2015. Offline sales at the mainland’s top 50 retailers declined 3.1 per cent year on year in the first half of 2016, according to figures from the National Commercial Information Centre of China.

However, the discount mall sector appears ripe for strong growth; for a country with China’s population and spending power, there are relatively few factory outlet malls - just 40 at present - compared with as many as 300 in the US, said Zhong Beichen, chief executive of outlet developer Beijing Capital Juda, which has already opened four such outlets, in Beijing, Hainan, Zhejiang and Jiangsu.

“We aim to open outlets in more than 20 cities by 2020 and become the largest outlet operator in China,” Zhong told the South China Morning Post. “Discount malls can perform well despite economic ups and downs” because they offer customers cheaper price points, he said. “When the economy expands, people shop to dress nice, but outlets will still be the first choice for those seeking affordable luxury in an economic slowdown.”