Vigorous sales spur more outlet growth - Value Retail News

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Chinese outlet centers
aren’t Western clones
by linda humphers
Editor in Chief
At least three U.S.-based companies
are providing outlet expertise
and consulting – up to a
point – to Chinese developers planning
to open outlet centers in the People’s
Republic. The U.S. companies are:
l Chicago-based Urban Retail Properties,
through its Urban Retail Asia office
and assisted by outlet veteran Ron Simkin,
is consulting with Shanghai Textile
on a project scheduled to open in 2011
l Leto Consulting, whose principals
include Peter Leckerling and outlet veteran
Phil Palisoul, is providing planning,
leasing and management consulting to
two Chinese developers
l Horizon Group Properties, which
operates five U.S. outlet centers, is working
with a Chinese developer to open as
many as eight outlet projects.
According to Peter Leckerling, managing
director of Leto Consulting, the
global economic crisis has had little effect
on development in many Chinese provinces.
Taking the lead from the central
government in Beijing, which in November
of 2008 announced a €430 billion
stimulus package, government officials
are encouraging developers to increase
the pace of outlet development.
“As the outlet model isn’t urban,”
Leckerling explains, “outlet centers can
be built on many non-urban plots that
the government has released for public
auction. This is enticing since China’s
urban land is often overpriced and
always overcrowded.”
Leckerling adds that most Chinese
outlet centers don’t embrace the outletvillage
footprint used in the U.S. and European
Union countries. Instead, Chinese
outlet centers are usually large buildings
subdivided into numerous squares, typically
ranging from 300 sf to 500 sf.
Furthermore, the tenants are primarily
either developer-owned stores filled
with goods bought at wholesale, or
12 INteRNatIONaL OutLet JOuRNaL SPRiNg 2010
Shanghai Textile is redeveloping
12 buildings in the Yangpu section of
Shanghai, China’s second-largest city.
The outlet center will be in a 36,000-m 2
structure on the site.
shops run by local franchisees who
pay percentage rent only.
There are exceptions, of course. The
tenants at Shanghai Outlets in Qingpu
are legitimate national franchisees of international
brands such as Nike, Adidas,
Zegna, Esprit, Nine West, Hugo Boss,
Benetton and others.
“But many brands realize that customers
in secondary cities don’t have
the purchasing power to make an outlet
store profitable,” Leckerling says. “So
these non-traditional outlets have allowed
development to move forward in
the secondary markets.”
China’s unique approach to development
and tenanting is initially daunting
to Westerners, even those who’ve been
in the outlet business for a long time.
Gary Skoien, CEO of Horizon Group
Properties told IOJ that he first started
looking at China on his own, without
a partner. “Then I realized that I could
spend the rest of my life trying to figure
it out,” he says.
Horizon formed a partnership in February
with a publicly traded real estate firm
that specializes in commercial and residential
development. Three unnamed sites are
currently under control and five additional
sites are under study, Skoien says.
In contrast with Horizon Group,
Urban Retail has been doing business
in China for several years. The partnership
with Shanghai Textile Company will
result in the redevelopment of a centuryold
factory into Shanghai Fashion Center.
The outlet-retail portion of the project
is one of six elements in the complex,
the others being food and beverage, a
theater, a VIP club, office space and a
hotel. The site, in the Yangpu district,
has 12 buildings, and the outlets will be
in a three-level, 36,000-m 2 structure.
The developer’s main hope is that the
center will be a catalyst for returning
Shanghai to its former status as a global