E-commerce hitting China's big cities first as shoppers switch to internet

Growth in online shopping forces developers and retailers to rethink their offerings

PUBLISHED : Wednesday, 04 September, 2013, 12:00am
UPDATED : Wednesday, 04 September, 2013, 3:24am

Mainland developers are being forced by booming online sales to come up with new strategies to make their retail outlets attractive to buyers who are turning increasingly to the internet to do their shopping.

Management consultancy Bain & Company reported last month that China is set to overtake the United States as the world's largest e-commerce market by the end of this year.

"The popularity of online shopping has affected the businesses of supermarket chains such as Walmart and Carrefour, as well as retailers of mobile and electronic appliances and lower-end fashion," said Steve Chen, head of retail at property consultant DTZ in Greater China. "About 10 per cent of the business done in their stores has been taken over by online shopping."

Chen said the retail market in first-tier cities had suffered the most, since residents of the larger cities turned in greater numbers to online shopping due to their busy working weeks.

"Some retailers have responded by expanding into the online shopping market. Some have downsized some of their retail shop space by an average of about 15 per cent since last year, and some have closed shops with lower earnings," said Chen.

The trend is likely to expand into second- and third-tier cities in the near future, he added.

A spokeswoman for Suning, one of the major mainland electronics chains, said the company planned to open an online shopping website aimed at buyers in first-tier cities in the fourth quarter. "At the same time we will also open flagship stores and close stores with lower profitability in second- and third-tier cities," she added.

Rival electronics retailer Gome shut 70 less profitable stores and opened 35 new or larger stores in different locations. It said it cut 28,400 square metres of retail floor space through sub-letting and lease terminations.

Steven McCord, local director of China retail research at property consultancy Jones Lang LaSalle, said: "Low-end, strata-sold shopping malls will be the first to lose out from the rise of the likes of e-commerce portal Taobao, while mid-market malls are being forced to look at reorienting tenant mix and mall design around entertainment, services and other experience-related offerings."

The role of the concept store will further increase as a means of acquainting customers with a brand and its product lines, he added, while branding of malls can also make a difference by helping them stand out.

"The appeal of outlets such as food and beverage retailers, cinemas, and education centres is growing as they could attract customers to visit the mall. In the design of their malls, developers should therefore avoid the traditional 'big box' design and adopt designs such as the one adopted by Shanghai Xintiandi - which keeps the characteristics of a street-level shopping environment, said Chen of DTZ.

For the moment the growing popularity of online shopping has not yet affected retail rents, he added, and he expects retail rents in Beijing and Shanghai will maintain an annual growth of 5 to 10 per cent.