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PROSPECTS (from Hang Lung Chairman)
Given the slower retail markets in both Mainland China and Hong Kong, we are bracing
ourselves for a long winter. I would be happy to be proven wrong, but it seems prudent at
this stage to be cautious. We do not see many encouraging signs in the economy nor our
.industry
Consider the fact that within six months of our opening Tianjin Riverside 66 last Fall, at
least six sizable retail outlets in the City had closed down! We do not for a moment think
that we are the cause of their troubles. We are not that powerful, being among the best
in the market notwithstanding. While recognizing that there will be less competition going
forward, we are not particularly pleased with this development, for it tells us that the
.market is lethargic and there is no end in sight
Coincidentally all six closed-down retail facilities in Tianjin were department stores. It
was not that long ago when institutional investors asked us which model – traditional
department stores versus shopping centers – was superior. I thought the answer was
obvious but one could have easily accused me for being biased. Now most people are
;as convinced as I am. This however does not mean that all malls are spared from trouble
rather, it merely says that the weaker model will be the first to be hurt. (That said, some
department stores will survive.) If consumer confidence remains low, the inferior malls will
.also go. This is already happening
Fortunately not only do we have some of the best properties in the market, we are also
financially very strong. For the past nine years and to this day, we basically have zero
net debt. As such, it is difficult to think of an exogenous factor that can kill us. The same
.cannot be said for most of our competitors
Observing for some years the glut of inferior retail space in Chinese cities, I have long
pondered over how the industry will evolve. Now the answers are unveiling before us at
.considerable speed
The simplest form is to close down, or at least to mothball the property. Many are doing
just that. To figure out an alternative use will tax one’s ingenuity. One possibility is to turn
them into old folks’ activity centers. Given an ageing society, there will be considerable
demand for such facilities. However, how to make money therefrom is another issue. Retail
rental is among the highest yielding for any space, which means that most other usage, if
.not all, will bring inferior returns
A few daring souls are buying up failed shopping centers. Perhaps the new owners will
,be able to come up with better usage. But if all they do is to keep the space for retail
then I question their chances of success. The main reason for mall failure is not the
software but the hardware, i.e. what I call “real estate genetics” – location, size, design
and construction. These are factors which can never be changed once a facility is
constructed. It is like a short man not being able to play professional basketball or a tall
man doing gymnastics. A switch to a better coach will not help, for it is the genetics that
.counts the most
PROSPECTS (from Hang Lung Chairman)
Given the slower retail markets in both Mainland China and Hong Kong, we are bracing
ourselves for a long winter. I would be happy to be proven wrong, but it seems prudent at
this stage to be cautious. We do not see many encouraging signs in the economy nor our
.industry
Consider the fact that within six months of our opening Tianjin Riverside 66 last Fall, at
least six sizable retail outlets in the City had closed down! We do not for a moment think
that we are the cause of their troubles. We are not that powerful, being among the best
in the market notwithstanding. While recognizing that there will be less competition going
forward, we are not particularly pleased with this development, for it tells us that the
.market is lethargic and there is no end in sight
Coincidentally all six closed-down retail facilities in Tianjin were department stores. It
was not that long ago when institutional investors asked us which model – traditional
department stores versus shopping centers – was superior. I thought the answer was
obvious but one could have easily accused me for being biased. Now most people are
;as convinced as I am. This however does not mean that all malls are spared from trouble
rather, it merely says that the weaker model will be the first to be hurt. (That said, some
department stores will survive.) If consumer confidence remains low, the inferior malls will
.also go. This is already happening
Fortunately not only do we have some of the best properties in the market, we are also
financially very strong. For the past nine years and to this day, we basically have zero
net debt. As such, it is difficult to think of an exogenous factor that can kill us. The same
.cannot be said for most of our competitors
Observing for some years the glut of inferior retail space in Chinese cities, I have long
pondered over how the industry will evolve. Now the answers are unveiling before us at
.considerable speed
The simplest form is to close down, or at least to mothball the property. Many are doing
just that. To figure out an alternative use will tax one’s ingenuity. One possibility is to turn
them into old folks’ activity centers. Given an ageing society, there will be considerable
demand for such facilities. However, how to make money therefrom is another issue. Retail
rental is among the highest yielding for any space, which means that most other usage, if
.not all, will bring inferior returns
A few daring souls are buying up failed shopping centers. Perhaps the new owners will
,be able to come up with better usage. But if all they do is to keep the space for retail
then I question their chances of success. The main reason for mall failure is not the
software but the hardware, i.e. what I call “real estate genetics” – location, size, design
and construction. These are factors which can never be changed once a facility is
constructed. It is like a short man not being able to play professional basketball or a tall
man doing gymnastics. A switch to a better coach will not help, for it is the genetics that
.counts the most
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster