Recently, two well-known domestic “hot-pot” restaurant chains announced plans to open their first restaurants in Guangzhou. What was interesting was the different strategy adopted by each of the two. One operator chose to open its first restaurants in Tee Mall and Sky Galleria, both established malls located in Tianhe CBD while the other opted to open in Starlight Walk, a new decentralised mall located in Haizhu district, an area where mid-tier retailing is still only just emerging. At the same time, an international fast-fashion retailer revealed plans to open their first new boutiques in Shenzhen in Futian CBD and Houhai in Nanshan, two nascent retailing areas in that particular city.

Many people have asked me why more retailers have started to establish their footprint in emerging retailing areas since the traditional strategy adopted by most, has been to build up brand awareness in well-known locations before expanding outwards into peripheral locations. I believe that there are several reasons for this emerging trend.

Firstly, it is worth noting that some of the emerging retailing areas in Guangzhou and Shenzhen are in, or closer to, the homes of the city’s growing middle-class, an obvious target demographic for most retailers. In Guangzhou, districts such as Haizhu and Panyu are becoming increasingly popular in the eyes of retailers because their catchment areas not only include local residents but also those from neighbouring cities. In Shenzhen, the growing middle-class in districts such as Bao’an and Longgang has driven developers and retailers to invest in these areas.

Secondly, the completion of new higher quality shopping malls in emerging suburban areas is providing more viable choices for retailers. For both Guangzhou and Shenzhen, over 50% of all new retailing floor space due to be completed in the market over the next five year is located in emerging retailing areas. The new shopping malls being built are changing the landscape of retailing in these areas. Instead of the traditional retail podium format (as part of a larger residential or mixed-use development), a greater number of new shopping malls are now being built as stand-alone developments and are not only of higher build quality but also better managed.

Last but not the least, establishing a footprint in emerging retailing areas helps retailers achieve economies of scale. Though retail sales growth in Southern China has more recently started to stabilise, rents in traditional prime retailing areas continues to steadily rise, largely as a result of the supply-demand imbalances in these areas. These imbalances not only put upward pressure on rents but can also impede on the real estate plans of retailers, which is crucial for new market entrants seeking to expand their retailing network quickly over a short period of time. In contrast, the availability of new supply there and lower rentals in emerging areas can help mitigate some of these risks.

Moving forward, I expect this new strategy of new market entrants shunning traditional shopping areas to establish and grow their business in emerging retailing areas to gather further traction.

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