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Kenny Sim

Insight into the Chinese designer outlet market

​​Kenny Sim (Associate Fund Manager) discusses how although the Chinese outlet market is very much in its infancy with variable levels in terms of centre quality and operational ability, the sector is showing signs of positive growth for quality outlet players.

​Although the Chinese outlet market isvery much in its infancy with variable levels in terms of centre quality and operational ability, the sector is showing signs of positive growth for quality outlet players. Local outlet developers have previously viewed outlets as a side attraction to large mixed-use projects and have so far lacked both focus and expertise in managing outlets. The potential upside is that affluent Chinese shoppers are demanding greater sophistication in their shopping experiences whilst seeking greater discounts on current fashion merchandise. This coupled with a lack of dominant outlet players across the Chinese market and limited management know-how among domestic players, provides a tempting proposition to international operators.

Key areas for outlet growth in China will remain amongst cities with significant wealth and population catchments, increasing demand for international consumer brands, sophisticated high street retail penetration, and increasing shop densities amongst recognised brands. Tier 1 cities such as Shanghai, Beijing and Guangzhou have the right customer demographics for outlet performance, along with a steady supply of outlet inventory from the full price high street retail stores within these cities. Managed by RDM Fingen, the Jingjin Florentia Village Outlet located between Beijing and Tianjin is considered one of the most successful outlet centres in China, while the Shanghai Qingpu Bailian Outlet is one of the more successful outlets run by domestic retailer Bailian. Up and coming cities such as Chengdu, Chongqing, Zhengzhou, Changsha and Kunming trail closely behind.

Challenges faced by the sector include brand understanding and readiness in lesser known cities, timing and availability of supporting transport infrastructure in certain locales, adequate regional retail stock, assurance of build and design quality within the local contractor's market, and notable weaknesses in the operational experience for outlet asset management teams. Building up a brand name as a renowned outlet operator requires considerable effort too.

The key to successful outlets in China includes having an expertise in outlet management, understanding retailers’ operational requirements and having a well-executed leasing plan. Cautious site selection to ensure appropriate accessibility and transport connectivity is essential. Enduring design quality, best-in-class asset/facilities management and a strong tenant variety is the only way to ensure these outlets retain customer loyalty and stand the test of time. As noted in many ill-conceived outlets in China, it’s a quick and painful failure for those who do not manage to deliver these.

The coming 2-3 years will see international and domestic outlet players focus on developing appropriate footprints across selected cities. Henderson's JV outlet interests in China alone will see the confirmed addition of two new premium outlet sites plus an existing expansion over the coming two years. Steadfast growth of a very brand-aware middle class will continue to solidify the case for premium outlets over the coming decade. The future is bright for Chinese outlet space, particularly in cities supported by the right demographic of Chinese shoppers and in those cities developing a demand for retail outlet space from mature retailers. Ultimately, success awaits for outlet operators willing to push through the challenges of investing in China.