A Tale of Two Malls

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\"RRFifty meters off Nanking Road in Shanghai, behind the Apple Store, you still have remnants of the early 20th century city. The alleys are narrow and you can stare into homes lit with cold fluorescent lights. The dirt, the smells, the noise and the life are visceral. Although it isn’t the dark side of the moon, the impulse is not to linger. It isn’t from a sense of danger, but rather the dawning realization that you are an alien – a stranger in a strange land. It’s an unsettling time warp, where in the space of a few dozen paces, the 21st century fades and the 19th century seems just around the corner.

This juxtaposition makes Shanghai an unlikely battleground for modern luxury shopping. Each year, new malls open in a very crowded marketplace with a fresh proposition. The older the mall, the more it gets pushed down-market. Commercial properties are not aging well in a city of 24 million people where construction fever floats on a bloated financial system desperate for just a modest return on their cash.

For jaded shoppers bored with last year’s hot spot, the attraction is no longer about scale, but about the proposition. While it is not quite as simple as the 2013 holiday decorative stars, the 2014 goats continued to try to reinvent the retail thematic proposition. But in a mall where five years ago you had to stand in line to ride the escalators, today it is startlingly vacant.

The yeast to the mix is based on demographics. Unlike London, where the global über-affluent come to play, Shanghai caters to its local, homegrown wealthy who are busy day in, day out. My cynical Chinese friends say that the happiest people in China are the domestic servants working in the homes of the elite, because their masters are never home to enjoy their palatial digs; they are either at work, adding to their piles of money, or out desperately looking for places to spend it.

\"RRMall Stories

So let this serve as a cautionary tale of two new malls, both of which opened in the past 18 months. IAPM is the latest product of the Hong Kong-based development group Sun Hung Kai. This family-owned company has been in the headlines lately as internal family disputes have spilled over in the press. At its soft opening in August, 2014, it boasted a broad tenant roster, including Zadig & Voltaire, Marimekko, Fedon, Nespresso and the new Gucci Café; a total of some 238 brands of which some 60% were international, 30% Hong Kong-based, and 10% local. Its unique selling proposition is that the mall is open late, until 11:00 PM. Asia has a long tradition of night markets with a heady mix of food and goods; in that spirit, IAPM is expecting some 36 million visitors a year. It is a handsome property with vistas soaring up six levels, natural light and lovely bathrooms.

The promotional theme at IAPM, when I visited, was Snoopy. The central concourse was filled with dozens of four-foot Snoopy statues and a few appropriately sized doghouses. I hope Charles Schulz’s heirs are collecting royalties and tithing regularly. Who would have guessed a Midwestern cartoon mutt would morph into a shopping icon on the other side of the world?

While money sloshes around Shanghai, children are noticeably absent. The slang expression in Chinese for small children is “little emperors.” After Japan, China has the fastest aging population base of any nation on earth. For both China and Singapore, the explosion of economic opportunity has cut the birth rate sharply as aspiring members of the middle class postpone both marriage and children. Family size is no longer strictly controlled by law, but rather by economics and ambition. What few children you see are generally being minded by their grandparents. Thus, each kid can have up to six adults focused on their personal maintenance. Emperors indeed.

\"Paco8\"As much as Snoopy may be an attraction to young children, this choice of a promotional vehicle for a mall focused on adult nighttime traffic is one I have a hard time understanding. Nevertheless, the cutie-pie factor is alive and kicking in the Asian market. But IAPM is not getting it.

K11 is a different story entirely. It is not a new mall but a redevelopment of an existing property. The 61-story tower is the project of another Hong Kong family, the Chengs, owners of New World Development Company, which also owns the Chow Tai Fook Jewelry Group with more than 2000 retail doors across China. The Cheng family, now in the third generation, also has a string of Ferrari dealerships spread across China. Dr. Adrian Cheng, grandson of the founder, is the driving force behind K11 redevelopment. Young, urbane, Western-educated and oh so hip, he has dedicated his property to art and ecology. His K11 Foundation is focused on propagating young Chinese artists and has joint ventures with Western museums. Bicycles made from bamboo are parked at the office building entrance. The galleries in the mall when I visited had a show of modern Korean design, ranging from packaging to architecture. By the way, the Koreans have done a good job exporting modern culture from K-Pop music to soap operas that translate easily and appeal to Asian sensibilities. The impact is profound across luxury goods retail markets as Korean car, electronics and beauty brands move up-market.

\"Paco3\"As Dr. Cheng explained to me, all of the tenants are required to offer lines that are exclusive to his property. He stresses that K11 is more than just a landlord. The mall is regarded as luxury positioning for the office building above and its mantle of culture adds to the cache and price of the property. He made the analogy to the MoMA tower in New York City as an example of how cultural proximity propagates value. Actually modeled after the MoMA design shop, K11 has its own retail store built amidst the art it exhibits.

The front of the property has a huge conceptual waterfall, complete with an inflating and deflating Jeff Koons-esque wine-colored pig. The common areas of the mall on the food court floor are used to grow vegetables that are, in turn, served at the adjacent restaurants. The interesting concept of a petting zoo of small animals which migrated to the kitchens of the adjacent restaurants (Fresh Direct redefined) has been removed. The indoor vegetable garden, however, remains. Dr. Cheng says that other K11 properties are in the pipeline. All in all, K11 gets it.

High-Low at the Mall

K11 versus IAPM: I call it Culture versus Kulcha. The contrast is relatively simple. Building it bigger is no longer an advantage. While the tenant mix is important, the property has to be targeted for its intended customers. One of the nice things about Culture/Kulcha is that it is flexible and easy to refresh, promotable, and lends itself to event-making.

In the end, whether it’s Snoopy or art-aesthete inflatable pigs, the line between commercial and fine art has gotten very blurry. Malls can be great showcases for both. The high-low concept is also about architecture down to the street level. Both mall properties have their own unique curb appeal. If you are sensitive to your customers, a modern-day P.T. Barnum at heart, and in touch with the cultural conversation, you can make your mall story transcend the mundane shopping center experience into something that redefines retail. Trying to be all things to all people is so 20th century. I like Dr. Adrian Cheng’s courage.

David Simon, are you listening?



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