AFP
China’s former richest man Wang Jianlin once bet Alibaba founder Jack Ma 100mn yuan ($16.3mn) that online purchases in the country would not eclipse bricks-and-mortar buys in the next decade.
But while Wang says he laid the wager “for fun” two years ago, the billionaires’ business interests are increasingly converging as Chinese consumers’ spending habits undergo a seismic shift – and much larger sums are at stake.
China has the world’s biggest population of Internet users, with annual online sales jumping 41% in 2013. However, that figure represents a paltry 7.8% of overall retail sales, leaving plenty of room for growth.
Zhuo Saijun, a Beijing-based analyst with Analysys International, told AFP consumers were increasingly going online to purchase “in the easiest and most convenient way”.
“If an online platform has more advantages in terms of cost performance and information retrieval, consumers will definitely be more inclined towards online,” he said.
The e-commerce explosion contrasts with the slowdown of retail sales as a whole, a palpable trend even before the luxury market was hit by party cadres curbing excessive spending in response to President Xi Xinping’s anti-corruption drive.
Property developers, already saddled with excess commercial space, are spooked. Half the world’s shopping mall projects underway are in China. Among them is northeastern Shenyang city, which has 28 megamalls for six million people.
The spread of malls has accelerated under pressure from local governments, with Chinese cities taking nine of the top ten spots in the world last year by amount of newly constructed retail space, US consultancy CBRE says.
Occupancy varies according to location, with some never empty while others in the farther reaches struggle to attract repeat customers, said KK Fung, managing director for Greater China at real estate investment firm JLL.
Typically marrying an array of clothing and cosmetic franchises with fast-food courts and coffee outlets, some become “phantom malls”, filled with little more than an incessant soundtrack of syrupy muzak.
Larger cities can absorb the construction of more malls but provincial capitals “will suffer”, Fung cautioned. National supply is expected to double between 2013 and 2016.
“Some developers made promises to governments, they are caught between a rock and a hard place,” Fung said.
To compete with online rivals, he said malls have increased the number of restaurants and food providers, while some have opened theme parks or kindergartens. One in Shanghai saw sales jump 20% after exhibiting paintings by Claude Monet.
These malls represent the next retail frontier for China.
While Wang built his name with Wanda, a commercial property conglomerate that owns hotels, cinema megaplexes and shopping malls, Ma’s rise came on the success of upstart e-commerce businesses under the Alibaba group.
Alibaba’s Taobao is estimated to hold more than 90% of the online consumer-to-consumer Chinese market, with 800mn product listings and around 500mn registered users.
Seeing opportunities to consolidate strengths on the other’s turf, Wang and Ma’s once-distinct portfolios have now blurred.
Alibaba group invested $692mn in Chinese department store operator InTime in March, and Wang joined forces with tech giants Tencent and Baidu in August to set up an e-commerce platform costing more than $800mn. Wang and Ma are both seeking to capitalise on Chinese smartphone use to push users into physical stores with extra benefits once inside – a process known as “online to offline” retail.
Alibaba and Intime say they will expand an agreement allowing shoppers to purchase items instore with the Alipay app, and provide targeted promotions and membership benefits when connected to instore Wi-Fi and location-based technology.
Wanda, Tencent and Baidu will share a user membership system, synchronise customer data and offer the same Wi-Fi network across all Wanda’s 107 malls, according to the Financial Times.
A series of as yet-unannounced “innovative online financial products” is also in the pipeline, Wanda says.
