Tumbleweeds at the mall

In reading Caroline Wheelers article in The Globe and Mail I got to thinking about a paradox, wrapped in a riddle and infused with mystery, that has been on my mind a lot lately.

Ive had a lot of names for it over the years but the most succinct one is EMPTY STORE SYNDROME.

It is a phenomenon somewhat particular to China. If you have spent any time traveling or doing business in China you know the scene.

Three thousand square feet of retail space in a luxury mall staffed by pretty/handsome/fashionable young people. Every product looks perfect, the fixtures, lights and other aspects of merchandising are perfect and the tenant is a world famous top 50 brand, onlythere is no one in the store. There never is. If you step into one of these stores you are either a. surrounded by five staffers eyeballing you suspiciously or b. ignored by the five sleeping, reading, dreaming staffers

In general the people are in the mall and they may pass through the store, but they NEVER BUY ANYTHING!!!! Or so it seems.

A recent Cushman and Wakefield report shows that rising rents, overcapacity and too much competition is exacerbating the problem in Beijing and other Tier 1 cities. Malls and stores that are either empty or just full of window shoppers.

This is an expensive problem for brands and the distributors who pay a lot of money for counters or stores in a mall.

Of course this flies in the face of my belief in the growth of the Chinese consumer market and the numbers that back it up. People in China are buying, they just dont seem to be doing much of it in the malls.

So where are they buying? Our year-long study of Chinese consumer behavior, channels, distribution and merchandising shows us that:

-E-commerce (both legit and non legit) is taking a huge chunk out of retail sales of luxury, premium and specialty products

-FMCGs are seeing increased sales on the internet and supermarkets, hypermarkets and traditional markets still make up a huge chunk of sale! s

-The stranglehold of the distribution systems that permeate and rule over almost all consumer product sales is starting to wane. Foreign brands and retailers are growing tired of the expense (50% of sales for the distributor anyone?) unreliability and low sales volume that comes with the distributor mall and department store model and are seeking alternatives

-The economics, control and return on owner-operated, stand alone, stores is helping this model gain ground

-The street-level and invitation only multi-brand retailer and boutique models are starting to gain in importance as well

-The expansion of brands and retailers into 2nd and 3rd tier cities means Mr. Wu can buy his Prada briefcase in Suzhou and doesnt need to go to Shanghai

So the paradox of robust consumer product sales and empty malls and stores can at least be partially explained by the above. What are you seeing out there? What is your view as a brand, retailer, distributor, shopper?

Is the China consumer market going to continue to expand exponentially or are we seeing Peak Shop in China?