Dalian, China – There is nothing that China cannot produce in abundance and often in excess – even malls. In the United States, 1 out of 6 malls has closed since the sector reached its peak in 2013. But China has been living a frantic construction boom, with the number of malls bending since 2013, reaching 6,700.
Many retailers in China are now feeling the consequences of this excess of buildings. While some Chinese malls thrive, others are withered by the lack of customers.
Apple closed its store this month at Shopping Intime City in Dalian, a port city in northeastern China. It was the first time Apple closed a store in the country, where the technology giant operates dozens of points of sale. Apple’s second Dalian store at Olympia 66 mall, just 2.5 km away, remains open and even absorbed staff from the closed store.
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Worldwide, malls are weakening in the face of strong e -commerce competition. Competition is especially fierce in China, where home delivery is particularly cheap and convenient. It is estimated that 10 million people work with deliveries, many in electric scooters, but some are already starting to use autonomous trucks and even drones.
Tax system is one of the causes
The real problem in China’s mall sector, as well as in much of the country’s real estate sector, is years of debt -funded frantic construction. The builders continued the built blitz despite the strong slowdown in retail sales, which began during the Covid-19 pandemic and persists to this day.
One of the reasons for continuing the construction of malls is China’s tax system. Local governments, which have a huge influence on what is built on their jurisdictions, obtain considerable income tax revenue. Residential buildings pay almost no annual real estate tax. Therefore, local officers often require new malls to be included in large real estate projects, and the construction does not stop.
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Last year alone, 430 malls were inaugurated in China. In contrast, the United States, which have a quarter of China’s population, currently have 1,107 malls, according to Costar, commercial real estate data company.
Ron Johnson, who founded Apple’s retail business as one of the company’s main assistants, Steve Jobs, said that even before leaving Apple in 2011, he realized that China was building more shopping malls than it needed.
“Builders everywhere they were raising significant shopping malls, and you knew not everyone would survive,” Johnson said.
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Winners and (many) losers
A close look at Shopping Intime City and Olympia 66, as well as five other malls in Dalian, shows how the mall industry in China is quickly dividing between winners and losers.
Shopping Intime City is one of the losers. The entry of the old Apple store, inaugurated in 2015, is blocked by white plates. In the same corridor, the showcases of an old Boss store and other brands are closed, with signs saying “soon” in English and Chinese, without more information.
Shopping Intime City refused requests for comment. Local media reported that the mall faced a financial crisis in 2022, near the end of the almost three years of “Zero-Covid” Lockdowns and Quarantines in China, and has been involved in disputes ever since.
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A widespread drop in apartment prices after Beijing tried to contain a real estate bubble that lasted decades erased most of the economies of the Chinese middle class, leaving it reluctant to spend. It’s not just the malls that suffer: two thirds of department stores also had a drop in sales and profits last year, according to a survey released in April by the Chinese Association of General Products Trade, linked to the government in Beijing.
“The central problem can be attributed to the drop in customer flow and purchasing power,” concluded the report.
Dalian, however, is doing better than many cities. It is the headquarters of industrial equipment manufacturers and war builders, national priority industries that receive billions of dollars in investments. It is also a tourist destination. Retail sales in Dalian grew 7.4% in the first half of this year compared to the same period last year.
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Jerry Mao, owner of Shanghai Tang, a luxury clothing and lifestyle brand, said Dalian is an attractive market, so he is evaluating the city’s malls to choose one for a new store. He said he would not choose the Intime City because other malls in Dalian have more energy and customers.
“Good malls have always been successful in China-the bad do not survive,” Mao added.
This article was originally published in The New Yor Times.
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