Savills World Research Chengdu

Briefing Retail sector January 2017

Image: Qingyang Wanda Plaza, No.1, Riyue Avenue, Qingyang District SUMMARY The launch of the Qingyang Wanda Plaza in Q4/2016 pushed up city-wide prime retail stock to 4.06 million sq m.

­ ­­ By the end of October 2016, the quarter (QoQ) to 5.8%, down 1.2 city’s overall retail sales reached ppts YoY. “The closure of the Hualian RMB460.69 billion, up 10.2% year- department store in Q4/2016, and on-year (YoY).  ­­ First-floor prime shopping mall its subsequent relaunch as an outlet rents increased 0.1% to RMB18 per mall, was well received by consumers  ­­ City-wide prime shopping mall sq m per day, up 0.44% YoY. vacancy rates decreased 0.6 of a due to the family-oriented tenant mix percentage point (ppt) quarter-on- combined with large discount offers. This format is expected to become a trend amongst developers looking to stand out against stiff competition.” Dave Law, Savills Research & Consultancy

savills.com.cn/research 01 Briefing |Chengdu retail sector January 2017

Economic overview bus routes and in close proximity to Vacancy rates Overall retail sales reached the West Railway metro station (line In Q4/2016, city-wide prime shopping RMB460.69 billion by the end of 4). The shopping mall (170,000 sq m) centre vacancy rates decreased 0.6 October 2016, up 10.2% YoY, albeit has positioned itself as a one-stop of a ppt QoQ to 5.8%, and prime with a slowing growth rate. F&B sales shopping centre; anchor tenants area vacancy rates decreased 0.4 of reached RMB56.9 billion, up 12.1% include Chengdu's first Dolby cinema a ppt QoQ to 6.6%. The decrease in YoY, while the rest-of-retail sales (Wanda Cinema), Suning , Uniqlo, vacancy rates can be attributed to reached RMB403.79 billion, up 9.9% and Yanjiyou Today’s Reading. prime projects in prime retail areas, YoY. such as the International Finance Newcore City Mall Square and Taikoo Li, adjusting and Supply Originally the Hualian Department upgrading their services and tenant The Qingyang Wanda Plaza was Store, the Newcore City Mall is mix in an attempt to encourage handed over in Q4/2016, pushing a joint renovation project by the market demand and create a better up overall retail market stock to 4.06 Chengdu Hualian Corporation and experience for consumers. As a million sq m. the E-land Group (a South Korean result, some brands have moved out; retail company). The mall, with a however, they have benefitted from Qingyang Wanda Plaza total GFA of 30,000 sq m, launched large-sized brands moving in, such Qingyang Wanda Plaza, built by in October 2016, and is located on as the Yanjiyou flagship store in IFS the Wanda Group, was launched in Jianshe Road, a non-prime retail and a Yangzhangou O2O store. December 2016, and consists of a area. Positioned as an outlet mall, shopping mall, shopping street, office other tenants include children’s Non-prime area vacancy rates also building and apartment building, with entertainment and F&B, however decreased, by 0.6 of a ppt to 5.7% a total GFA of 370,000 sq m. Located the high discount stores are the QoQ. This can be attributed to a at the intersection of Riyue Avenue biggest draw card. International number of large brands such as and Wuqing Road in the Guanghua brands include UGG, Adidas and the Greenland Global Commodity retail area, the Plaza is near several Nike, as well as brands under the Marketing Center G-Super, E-land Group umbrella: E-Land, Yanjiyou·Jian, Decathlon, Chengdu Teenie Weenie, Roem, Plory, Play House (Learn through Play) GRAPH 1 Who.A.U, and Palladium. This is the moving into non-prime retail areas, Retail sales, Jan 2005-Oct 2016 second Newcore City Mall in China resulting in a continual decrease in after Parkson Group and E-land Retail sales (LHS) YTD YoY growth (RHS) vacancy rates. 60 30% Group built the first one together in Shanghai. Except for a few retail brands like 50 25% Victoria’s Secret, Decathlon and Beijing Hualian Yanshikou Store COS, entertainment, F&B and 40 20% The end of October 2016 saw the childrens’ retail formats still are Beijing Hualian Yanshikou store, the principal adjustment direction 30 15% RMB billion RMB located in the prime Yanshikou area, of prime projects in the non-prime close. In operation for over 15 years, retail areas. For example, Capital 20 10% rising operation costs and decreasing Tianfu Square introduced children’s profits were the two main reasons education and training brands such 10 5% cited for its closure. as The Little Gym, Play House, Goldenyulin, and Anniekids, while 0 0% Rents Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Joy City introduced catering brands In Q4/2016, first-floor shopping Source: Chengdu Bureau of Statistics, Savills Research & Consultancy KangHoDong BaekJeong, Peter’s, mall rents increased 0.1% QoQ, to and FOOOO. RMB18 per sq m per day. In non- GRAPH 2 prime retail areas, several projects Market information Retail rent index, Q1/2009-Q4/2016 performed well, resulting in rents - In October 2016, Tai Koo Li increasing 0.2% QoQ to RMB12.2 introduced the first Sulwhasoo 150 per sq m per day. flagship store in China, a skincare brand by the Korea Amore Pacific 140 Due to a number of shopping malls Group. This store is also the first S in prime retail areas adopting a concept experience store in China. 130 conservative rental strategy in order The store design concept is in to retain attractiveness to brands, keeping with the flagship store in 120 average rents remained stable at Seoul and includes a Brand Zone, RMB37.6 per sq m per day. However,

Q1/2009 Q1/2009 = 100 Luxury Quarter, Gift Service area and 110 the Chunxi Road area is growing in Spa area, and provides Sulwhasoo popularity, both amongst consumers 100 Spa and Korean-style gift packaging and brands, resulting in increased services. As an S concept experience competition for the Yanshikou area, 90 store, it also offers special services

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 which has seen key projects begin such as skin care classes and 2009 2010 2011 2012 2013 2014 2015 2016 to lower rents in an attempt to retain product experience for online Tmall Source: Savills Research & Consultancy and attract tenants. consumers.

02 January 2017

- In November 2016, the first Store. Jo Malone London is part was closed and transformed into an Greenland Global Commodity of the Estée Lauder Group, and is outlet format which attracted over Marketing Center G-Super opened positioned as high-end skin care and 400,000 consumers on opening day. in Chengdu at Raffles City. Its perfume brand. The recently closed Beijing Hualian operating area covers about 6,000 Yanshikou department store is also sq m, with 4,000 sq m dedicated to - In December 2016, a 4,000 sq m expected to be converted into an a supermarket and the remaining Decathlon store opened in MixC. outlet mall. In addition, Chengdu 339 space occupied by fashion brands. In This is the fifth Decathlon store in rented out its vacant space to some December 2016, the second G-Super the city after stores in Tianfu, Xihua, brands to be used as a discount was launched at Evergrande Plaza, Pixian and Guanghua. It is also the store. The outlet format is expected taking up about 3,300 sq m. first time that Decathlon has opened to become another breakthrough for a store in a Chengdu shopping mall. retail projects, particularly in prime - In November 2016, COS, a high- The French sports brand entered the locations struggling amid fierce end brand under the H&M umbrella, China market in 2003, and stocks a competition. opened in MixC. It is their second variety of sports goods and brands. store in the city, after the first COS In 2015, the local government opened in IFS in 2014. COS offers Market outlook released their strategy “to Build an high-end, reinvented classics and In 2017, 22 new shopping malls with International Influential Shopping wardrobe essentials for both women a combined space of over 1,700,000 Paradise Action Plan” and in 2016, and men. sq m will be completed and ready this strategy was put into action. The to enter the market; however, Chengdu government and industrial - In December 2016, the Yanjiyou each project’s actual launch date and enterprise associations worked flagship store opened at Chengdu is dependent on leasing progress. closely with retail projects in the city International Finance Square, with The city’s future retail business to assist in increasing awareness for a total of 4,400 sq m. Expanding development is expected to show the the projects by holding events such on their traditional business model, following trends: as shopping festivals, working to which is a cafe, accessories and improve the shopping environment, bookstore, other brands such as The outlet format is one which improving consumers’ shopping a photo studio, hair salon and has been warmly welcomed by experience, and developing an supermarket were also introduced. consumers in the past, due to the online service platform. In the future, “brand plus discount” operating as incentivised by the government - In December 2016, the first pattern. It is expected to become strategy, the city’s retail market counter of Jo Malone London, an another trend amongst landlords of is expected to welcome new English fragrance brand, opened underperforming retail projects. In development opportunities.  at the Chengdu Wangfujing Zongfu 2016, the Hualian Department Store

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James Macdonal Dave Law Eric Wo Director, China Director, Western China Managing Director, Western China +8621 6391 6688 +8628 8665 7375 +8628 8658 7828 [email protected] [email protected] [email protected]

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