More than two and a half years ago I wrote about the inevitable collapse of China’s luxury malls. A brief reminder:
Anyone who’s walked around Shanghai’s more prosperous areas (and Beijing’s as well) is well familiar with the glut of luxury stores, with Bulgari and Gucci boutiques everywhere you look. This always fascinated me - the sheer number of such places in areas where I knew there couldn’t possibly be enough customers to ensure sustainable long-term profitability. I would sometimes stand outside the shops and watch for as long as half an hour (I didn’t have much better to do on the weekends). I remember seeing the shopkeepers going to fantastic lengths to look busy. One of them kept dusting the shelves obsessively. Another kept a book (or maybe a magazine) discreetly under the counter, at an angle where she could read while keeping an eye on the front door. One kept rearranging her hair. Another must have had the best-filed fingernails in all of Asia. This wasn’t a scientific study, of course, but based on what I saw with my own eyes I was convinced the high-end luxury goods stores had been overbuilt, and that eventually they’d either have to pack up and leave or keep eating what had to be painful losses.
Today I visited Beijing’s most stunningly dysfunctional, catastrophic mall, called The Place, and all I could think about was what I wrote back in 2006. Made to look kind of like Versailles on the outside, The Place is an irrational maze of stores and eateries that seems to have been designed to turn off and turn away customers. It has stairways that lead nowhere, unmarked elevators that take you to surprising places, not to mention a generally chintzy feeling created by all the faux marble and Grecian columns; it always looked pompous, but now it’s looking seedy and run-down as well.
The Place is around the corner from my office, and this was my first trip back in about two months, I was shocked at what I saw. Fifty percent of the eateries in the basement were boarded up. The cheap food court, too, was gone, covered up with ugly blue boarding, making the basement especially grim and dreary. The two good restaurants there, Ganges and Master Kong Chef’s, were still thriving. The few others that remained seemed to be just hanging on.
That same night I went by The Village, which seemed so cool when it first arrived and now seems so unnecessary aside from the Apple store and a couple of restaurants. Same thing as The Place: lonely clerks looking plaintively out the store windows, eyes begging you to come in and buy something. But no one does. There is simply too much stuff, too many stores, and no buyers. Do you have to be a rocket scientist to conclude this is unsustainable? And to top it off, they are now finishing the second Village mall down the street, across from the Poppa Bear of all disaster malls, 3.3. All I can say is, WTF??
I’m predicting The Place and many of its sister ghost malls, shunned by customers overwhelmed by so many malls to choose from, each selling the same crap that no one can afford nowadays, are going to experience a catastrophe, if they haven’t already, and will ultimately become burnt-out, boarded-up shells. In turn, this is going to throw a lot of fuel on China’s current financial crisis. Real estate will be further cheapened, and the general misery unique to times of deflation will set in. Brother, can you spare a dime?
All I want to know is how we got here. I told them this was coming 2.5 years ago and no one listened. The day of reckoning, the moment of truth is here. Even if things pick up, these malls are hopeless. Like the Mandarin Oriental, they will need to be razed and replaced with something useful, like affordable middle class housing (wishful thinking on my part). If not, Beijing could become a city pockmarked with looming dinosaurs, huge husks of once breathtaking buildings, now vacant and decaying, like so many of the Olympic structures.
I kind of understand why this overbuilding happened, as the economy became a vicious inflationary circle. Now we are experiencing the down wave, and it’s just starting. As we crash, The Place and many other useless mega-malls like it will serve only as reminders of the excesses of good times that we fooled ourselves into believing would last forever. Their time has now come. In fact, their demise is long overdue.
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