Now this is a topic I’ve wanted to write about for a long time, but was waiting for a piece to appear in the established media that would help to back up my personal observations. With this article, I have my opportunity.
Amid the towering glass-and-steel splendor of the Plaza 66 mall – with boutiques from Dior, Prada, Cartier and other luxury brands – shop clerk Xu Junyuan idly scratched his bald head as a lone shopper browsed the deserted aisles.
“I’m just bored,” said Xu, who works at the jeans boutique Diesel.
At Fendi, black-suited clerks yawned as they propped themselves against counters. At the palatial Louis Vuitton shop next door, a 7-foot-tall plasma television played to no one.
In this populous city of fanatical shoppers, Plaza 66 is what some locals call a gui gouwu zhongxin – a ghost mall. The prices are so high that no one buys much. But then, no one really cares.
Just as Stalin erected Potemkin villages to display the glories of communism to outsiders, Shanghai is creating its own illusion of prosperity out of the world’s most luxurious brands.
Offering cut-rate rents to top-tier fashion houses, this city of 18 million is determined to make itself look like a world capital of high fashion. And retailers such as Burberry, Hermes and Chanel are happy to join the charade.
“Most leading luxury brands will need to have a flagship store in Shanghai if only to put Shanghai along with London, Paris, Milan on their bags,” said Paul French, founder and China chief of Access Asia, a marketing research firm in Shanghai.
The illusion is so thin that some stores don’t bother to carry much stock. Others might have lots of clothes on the racks, but only in one size: medium, which is too big for most Shanghai women.
Some shops “don’t ring up a single sale for days,” Xu said.
Interesting issue. I wrote one of my most controversial posts ever on this topic long ago on the now defunct site known as Living in China, and I stupidly failed to post it on TPD so it’s lost. This topic, questioning whether the Chinese middle class as perceived by the West truly exists, raised unusual ire and defensiveness. I think that was mainly because the argument was misunderstood; the key phrase in the previous sentence is italicized: as perceived by the West.
Only an idiot could deny the existence of a huge middle class in China. However, to become a member of that middle class you need to have an annual income of $5,000 (see the comments to this post for reference; unfortunately most of the links are now dead). That’s nothing to sneeze at in China. But when we in the West are fed stories of China’s vast middle class, it is in the context of the expected wave of Chinese tourists making international voyages, buying Armani suits and Louis Vuitton bags along the way and maybe a Lexus while they’re at it. The Western middle class does those things. (I have an Armani suit, and I guess if I wanted to I could buy a Lexus on my middle class salary, albeit I’d be paying it off for quite a few years.) And therein lies the myth. Only a fraction of China’s middle class (as defined by China) can afford to do these things and continue living at a middle-class level. On $5,000 a year, it’s simply impossible. [For some more eye-opening numbers, here’s the original article that kicked off this debate back in 2004.]
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 obsesively. 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.
I’ve heard different schools of thought on this issue. One of my colleagues assures me these high-end stores are thriving, and that there are enough Chinese nouveau riche to keep them going. The numbers (again, see the article that first got me writing about this topic) and my own observation tell me it just isn’t possible. I also know, as a PR person who has worked with some of the big brand names, that everything isn’t coming up roses for them in China (although all of my own clients are doing fantastically well, of course). Among these companies, there seems to be a somewhat ingrained belief that goes something like this:
“We must be in China. This is the last great market left and even if we lose money for years, that is simply an investment for the future. 1.3 billion people: if we can only attract one-half of one percent of that market….”
Of course, anyone who’s read the classic China Dream knows the folly of this kind of thinking. (The book tells the classic story of the P&G executive telling his sales team the potential for deodorant sales: “2 billion armpits!”) And i think today’s plaintive article on Shanghai’s ghost malls really says it all: China has incredible potential (duh), a fast-growing middle class, but nothing at all to compare with the purchasing power of the middle class of developed countries. Not yet.
Go read today’s article. I love Shanghai, and quite honestly I hope to live there some day. But let’s be real. A lot of it is tinsel and window dressing. It feels so good and it’s so wonderful – I admit, I am totally enchanted with it. But that doesn’t change the fact that there is a lot less to Shanghai than meets the eye.
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