17 February 2020
With many businesses mired in a slowdown
With many businesses mired in a slowdown

The rise and fall of Hangzhou malls: What’s the message?

China’s biggest shopping center, as measured by the total sales of tenants, during 2007-2012, the golden years of luxury sales boom in the country, was not any of those grandiose malls and arcades located in Beijing or Shanghai. The distinction instead belongs to a rather nondescript and even slightly scruffy department store in Hangzhou, the capital of the eastern Zhejiang province.

In its heyday, the Hangzhou Tower Shopping Mall used to rake in almost 6 billion yuan (US$970 million) a year, with luxury goods sales in some cramped outlets in the mall repeatedly surpassing those in bigger stores in Beijing and Shanghai.

It was a mystery back then for retailers and analysts as to how that shopping center in Hangzhou, a city hardly regarded as a top-notch urban center with a relatively small economy, beat rivals in bigger metropolises and sit atop a ranking compiled by the Ministry of Commerce (MoC).

Indeed, what made the miracle were the numerous entrepreneurs and factory owners from elsewhere in the province, usually referred to as “tuhao” {土豪} in Chinese — the nouveau riche who like to flaunt their wealth with luxury goods. The city was once touted as one of the top destinations for luxury shopping in the country as 80 percent of the world’s high-end brands were said to be available there.

But interestingly, Hangzhou has recently seen a sudden slump in retail sales, prompting industry observers to scratch their heads.

Figures from the local commerce bureau show that business of the 7 largest shopping centers in the city, including Hangzhou Tower and 5 outlets of the well-known department store chain operator Intime Retail Group (01833.HK), went into a nosedive with a combined year-on-year sales drop of almost 25 percent during this year’s seven-day lunar New Year break, traditionally a peak sales season when many Chinese embark on a shopping spree for gold, luxury goods and other costly items.

This is in line with the drop in Hangzhou Tower’s position from the top spot to the 4th place in the national retail rankings. The top three malls and shopping centers on the MoC’s 2013 list were Beijing’s Shin Kong Place {新光天地} (7.5 billion yuan sales in 2013), Guangzhou’s Grandview Mall {正佳廣場} (6.2 billion yuan) and Shenzhen’s Mixc Mall {萬象城} (6.1 billion yuan). The top three spots were thus taken up by first-tier cities.

One may argue that given the tepid economic climate, the central leadership’s frugality drive and the sweeping impact of cyber shopping, Hangzhou may not be the only victim and that the landscape of the entire retailing sector is bleak. But that is not borne out by fact. Major malls in Beijing, Shanghai, Guangzhou and Shenzhen have all boosted their sales during the lunar New Year break.

So what happened to those tuhao in Zhejiang? Have they suddenly lost their appetite for expensive suits, wristwatches and handbags — the pillar source of revenue for malls and department stores in Hangzhou?

Some people indeed have had a change of heart and have become more cost-conscious and are no longer regarding luxury items as the only symbol of their fortune.

Hangzhou-based Daily Business reported that more and more big-spending consumers, who used to splurge more than 100,000 yuan a time for Ermenegildo Zegna suits and Armani shirts, now go to Uniqlo and H&M. Besides fast fashion brands, some also flock to outlet stores to shop discounted goods instead.

But perhaps a more underlying cause is the deep plight of some private medium- and small-sized enterprises in Zhejiang. Hit by weak external demand and credit crunch, and heavy interest burden, making money has become a lot more difficult.

Factory owners badly out of pocket have no choice but to shed unnecessary expenses and extravagance. While top-tier metros can rely on the purchasing power of their residents and new immigrants to cushion the headwinds, secondary cities like Hangzhou are apparently more vulnerable to the downturn.

It is said that the average sales volume per client at Audemars Piguet and Chopard stores in the city plunged 50 percent last year while Louis Vuitton, Salvatore Ferragamo and Gucci stores there, once among these brands’ most profitable outlets in China, saw an average 30 percent sales loss.

State-owned China Resources (Holdings) Co. had chosen Hangzhou as the location for its first Mixc Mall — the firm’s flagship upscale shopping-complex brand — outside the first-tier cities. However, after some initial sales growth, the Hangzhou Mixc Mall reportedly suffered a 12.5 percent revenue loss in 2013.

The Hangzhou phenomenon is now quietly spreading like a contagion to other second and third-tier cities. Hermès, for instance, closed its boutique in Wuxi last year. After the “go rural” bandwagon among major brands to extract the potential in smaller cities, it’s now evident that it is the top-tier metros — which have diversified consumer groups – that are the real safe havens when the storm comes.

– Contact the writer at [email protected]



EJ Insight writer