Suzhou Village, China

For all the talk of the seemingly unstoppable rise of the Chinese consumer, it seems extraordinary that there are so few luxury outlet shopping villages in the country. This is all set to change.

On May 15, Value Retail, the European discount luxury outlet chain that operates the UK’s Bicester Village outlet centre, opened a vast development at Suzhou, a 2,500-year-old city that used to be the country’s cultural capital.

The village of around 35,000 square metres comprises approximately 100 boutiques, of which 10-15 per cent sell discounted Chinese brands. Being within a couple of hours’ drive from Shanghai puts the centre within reach of potentially 147m people.

Around the world, outlet villages are big business. In Europe alone there are more than 200, which accounted for €12bn worth of sales in 2013, while the 195 outlet malls in the US and Canada turned over $28bn.

In China, designer outlet stores have started to spring up. In June 2011, the Florentia Village Designer Outlet Centre opened in Wuqing, located between Beijing and Tianjin.

With a site covering a total of 60,000 square meters, it plays host to brands that include Bulgari, Bottega Veneta and Jimmy Choo, and attracted more than 3m visitors in 2012.

The centres are becoming ever more sophisticated. It is 20 years since Value Retail, co-founded by Scott Malkin in 1992, came up with the idea for Bicester Village. Instead of rails of bunched-up garments and dingy cut-price interiors, there were fancy window displays, merchandise was beautifully laid out in a clean environment, and there were restaurants and coffee shops to keep shoppers happy. The only clue that it was an outlet centre was that all the merchandise was at least a year old and had to be sold at a minimum discount of 30 per cent to full retail price.

Malkin realised that if he wanted to attract high-end fashion brands, such as Prada, Gucci and Dior, that would bring in high-spending customers, he would need to create an environment that did not damage their brand image.

John Lutzius, a London-based property analyst at Green Street Advisors, a consultancy, believes this been instrumental to Malkin’s success. “Scott Malkin has always admired what Marvin Traub did at Bloomingdale’s in New York, which was to turn a staid department store into a dazzling destination. He has brought that same sense of showmanship to his centres, which is why Bicester, for instance, has among the highest sales per square foot of any retail outlet in the world.”

Suzhou Village Welcome Centre
Suzhou Village aims to emulate the ambience of luxury retail such as that found in Hong Kong

In Suzhou, to match the perceived demands of sophisticated Chinese consumers, Value Retail has increased the levels of service, luxury, architecture and entertainment beyond those in any of its other villages.

“Nine months ago, the Chinese appetite for heavily logoed products shut down almost completely,” Malkin says. “High-end Chinese consumers know and understand luxury and quality, and they want the real thing. They can tell in an instant a ‘secretary’s bag’, and they don’t want that. They have become more sophisticated at a faster rate than I’ve observed in any other emerging market.”

For Malkin the move has been generated by demand from the brands themselves. “[Companies] such as Armani, Valentino, Gucci and Tod’s all sell directly in China, and they all need somewhere safe to dispose of their surplus stock.” In addition to Suzhou, Value Retail is opening another outlet centre this year, near the Disney resort being built on the outskirts of Shanghai.

Entrance to Suzhou Village
Entrance to Suzhou Village

Other operators are more cautious in their approach to China. McArthurGlen Designer Outlets, which says Chinese visitors account for 20 per cent of its sales, has no plans to expand there. It will open an outlet at Vancouver airport next spring to draw on the large Chinese population living in the city as well as Chinese tourists, but this is its only outlet planned outside Europe. “At heart,” the company says, “we are a European brand and see huge potential in fashion-loving Chinese travellers coming to Europe to shop.”

But it will not be long before more high-end outlet centres open in China, suggests Ian McGarrigle, chairman of the World Retail Congress. “Modern retailing in China is moving so fast,” he says, “that it would not surprise me to see the outlet centres . . . establishing an important niche that will appeal to Chinese consumers, who are increasingly attracted not just to luxury but aspirational and international brands too.

“Chinese brands will also come to recognise that the less attractive clearance outlets do more harm to them longer term. The brands will quickly take the same route as North American and European retailers in following their customers to the more upmarket outlet villages.”

Indeed, Silk Road Holdings, the investment vehicle behind Florentia Village Jingjin, is currently working on two new designer outlet shopping centres in Guangzhou and Shanghai, which, respectively, will offer 45,000 sq m and 56,000 sq m of designer outlet shopping. “Each site is strategically placed with excellent connectivity and benefits from large catchment areas with affluent target customer groups and limited local competition,” said TIAA Henderson Real Estate, the investment adviser to Silk Road Holdings.

The Suzhou centre will not be fully open until the end of September, but already customers are starting to pour in. Forecasting 10m visitors in the first year, Malkin is confident they will come. “Recreational time in emerging markets is disproportionately focused on shopping,” he says.

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