China Real Estate Fallout: Brick and Mortar Retail Crushed

One of the under discussed aspects of rising real estate prices is the attendant rising rents amid a brick-and-mortar retail slowdown. In 2015, the top 100 chain stores saw sales growth of only 4.3 percent.

Locally, in Beijing the smaller mom-and-pop retail shops as well as national chains are being forced out by high rents, as rental agreements expire and the minimum increases are at least 100 percent. Mix in shifting consumer behavior, particularly the popularity of online shopping, and it is a brutal environment for the least efficient retailers.

A reporter for the Beijing Evening News heads to Xinjiekou Beida Street to see the impact on the ground.

Yesterday afternoon, just the beginning of autumn (Liqiu August 7-22) of Beijing is still hot. From Jishuitan subway station out along Xinjiekou North Main Street South a rough count shows about ten small stores at least half with the words "sale", "clearance" and even more than one "contract expiration" two or three family has to pull the shutter doors, completely closed shop closed state. The old familiar clothes shop has been replaced by a shop selling steamed buns and meat patties. A clothing store retreated from higher rental shops along the street to the alley inside, to attract customers it has a "Grand Sale" promotion red sign hanging.

Contact by telephone sublease front of the store, correspondent to turn to a store owner. He told reporters that although the lease is to expire in April next year, but because of the difficult business environment, ready to move up, "mainly rents are too high." The owner said, Xinjiekou traffic here also, but his rented storefront upper and lower rent would more than 1.5 million yuan a year, an average of 129,000 yuan a month, plus the prior renovation costs, operation stress is too great. Now the shop is handbags sale, sell a single inexpensive earn more than twenty yuan, the most expensive also more than fifty yuan. Even under the most expensive 50 yuan terms, without considering other costs, the shop must to sell 2580 each month to pay the rent. The boss said, in order to share the rent pressure, a lot of shops in this street are sharing the rent two- and three-ways.

Chain stores are feeling the pressure as well:

In fact, more than street shops closed tide appears, district located in Daphne, Metersbonwe, Ning [ -0.73% ] , Jeanswest and other brand shoes and apparel shops are also rapidly reduced stores. According to Daphne released the first half of 2016, a profit warning report shows only the first half of this year, Daphne net off store 450, including 400 direct sales stores and 50 franchise stores. Once all the rage Metersbonwe business situation is not optimistic about 2013 sales stores and franchise also has nearly 5000, the end of 2015 has been remaining 3700, store sales decreased by about a quarter. Jeanswest in the past 4 years has closed 1012 stores, at the end of 2015 had only 2249 retail stores.

In the micro-channel circle of friends spread a worldwide brick-and-mortar retail death list, it is revealing physical retail bleak. According to this list were killed in the first half 2016, a second-tier cities major retail companies closed shop more than eighty percent. China Chain hundred reports China Chain Store & Franchise Association released statistics also show that in 2015 the chain of hundred sales volume of 2.1 trillion yuan, an increase of only 4.3%, the lowest ever one. Department stores even have negative growth of -0.7%.

China Chain Store & Franchise Association, the relevant responsible person said, "This year the store is really a life and death to the moment", but specialty stores, convenience stores have achieved double-digit growth. Entity is not fully closed shop because of the impact of the electricity supplier, there are real weak economic growth, labor costs, rental costs, taxes, weak profits and other reasons. In the late 1990s, chains began a large expansion, rental contracts generally expired in 10 to 15 years, these contracts are now expiring and the rent is at least doubling, some low-margin supermarkets, department stores have been unable to renew the lease.

Another issue is the failure to embrace changes in the market:

Beijing Zhi future starting from Consulting Group founder Li pointed out that the impact of the electricity supplier, rent increases, etc. are one of the most direct reason. But more than the rent, labor, electricity providers more powerful impact, and is continuing under the influence of these factors, changes in consumer spending habits occurred. More important reason is consumer behavior, consciousness, the pursuit of consumer convenience, reliance on technology and the like. On the other hand, traditional commercial aspects of the transition moves more slowly. Department stores these years has been to break, suffer not found the right ways, not kept pace with changes in consumers.

Li Zhi said that from the domestic and international experience, the current transformation of department stores there are two main directions. On the one hand is to break through the high-end direction, shrinking front, the focus is more on the line, service requirements are relatively high business forms; in the other direction is toward a more pluralistic, more inclusive development, to provide similar shopping mall such a large, integrated leisure experience scenes business forms.

iFeng: 实体店频倒闭现状堪忧：一月卖2580个包才够交房租