Challenges and opportunities of retail property

Retail propertyChina’s retail industry has faced a number of challenges in the past few years, including the slowing economy which resulted in people becoming more conservative with their level of consumption, reduced spending on luxury goods because of the anti-corrception campaign as well as a change in shopping habits and preferences due to the rise of e-commerce. As such, traditional brick-and-mortar retailers suffered significant impact. Coupled with the increased retail space supply, retail property was negatively affected and the rent of the overall market in first-tier cities has been slightly decreasing since 2014.

With the rapid growth of e-commerce, the share of online sales as a percentage of China’s total retail sales increased from 8% in 2013 to 16% in 2017. Traditional retailers faced intensified competition from online retailers which provides consumers with a well-rounded shopping experience, offering a large range of products, convenient payment method via mobile devices and the efficiency of their logistics network.

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On the other hand, the rise of e-commerce provides some opportunities for the retail industry. For example, an increasing number of retailers are exploring O2O (online and offline integration) since consumers have a higher demand for an integrated shopping experience across multiple channels. As a result, traditional brick-and-mortar retailers have opened their online sales platforms, while pure-click companies are evolving from only selling online to building their physical presence. Besides, online stores have set up service stores for customers to pick up their online orders, which also increases demand for retail property in residential and commercial areas with high footfall.

At the same time, household income in China has been increasing and household structure has also been changing to smaller families. The growing influential millennials who spend generously present another opportunity for the retail sector. They are more aware of their health and pursue a more balanced and healthy lifestyle, and value the experience more than the brand-name products with luxury consumption. Thus, health product retailers, travel agencies, spas and restaurants benefit from the increasingly influential young spenders.

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E-commerce and millennials inevitably bring dramatic changes to the retail sector. Yet, retailers as well as landlords of retail property can discover new opportunities by embracing these changes. Landlords can divide their space to separate sections in order to cater to the demand for building pick-up points from online stores, while shopping centres can adjust their tenant mix according to the trends in the retail industry.

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