INVESTORS MAY BE fretting over a slowing Chinese economy but the executive chairman of Zhongmin Baihui, Mr Lee Swee Keng, tells NextInsight that recessions have minimal impact on the operator of malls in the southern Chinese province of Fujian.
”The department store business is lucrative in China but it is not easy to manage,” said Mr Lee, a Singaporean who has managed retail malls in China for over 20 years.
Demand for household consumables is driven by the rapid wage increase in China, he explained.
In 2010, China’s 30 provinces raised minimum wages by an average of 22.8% year-on-year, with the highest hike in Shanghai.
During the first half of 2011, per capita disposable income of Fujian city dwellers increased by 12.1% year-on-year while that of villagers rose 19.1%.
Indeed, retail sales in large malls in the province increased by 30.1% in 1H2011 to Rmb 122.4 billion.
What’s more, large malls like Zhongmin Baihui are gaining market share from the pop-and-mom setups. Large malls accounted for 41.8% of personal consumer goods sold in 1H2011, a 3.7 percentage point increase year-on-year.
Mr Lee has aggressive expansion plans. This month, Zhongmin Baihui opened its eighth department store in Fujian (Jiahe Road).
The latest store has a gross floor area of 251,000 sq ft, and increased the aggregate gross floor area owned and managed by the group by 26% to 1.2 million sq ft.
Just how big is 1.2 million sq ft? Well, Centrepoint on Singapore’s Orchard Road, with its 6 floors and two basements amounts to retail area totaling 1.2 million sq ft.
Zhongmin Baihui’s flagship store is a 3-storey building with one of the largest underground retail malls in Fujian. It is located smack in the bustling center of Xiamen’s transportation hub, within walking distance of bus terminals, bus rapid transit and the high speed train terminal to various major cities in the PRC.
As a mall operator, the group has four main revenues streams – direct sales of merchandise, commission from concessionaires, rental income and managed rental.
Most of the group’s direct sales come from merchandise in its supermarket, said Mr Lee. “It’s like the NTUC Fairprice supermarket, but we also carry mobile phones,” he said. Direct sales contributed 63.8% to 1H2011 revenue.
Its concessionaire customers include numerous large brand names for apparel, cosmetics and consumer electronics like Nike, Adidas, Triumph, Maybelline and Panasonic who set up their own sales counters in the mall. Commission (typically from 18% to 35% of product sales) from concessionaire customers accounted for 16.0% of 1H2011 revenue.
The pure rental customers are mainly F&B players such as BreadTalk, Bee Cheng Xiang, Kang Shifu beef noodles, but it also includes China Mobile. Rental income accounted for 13.2% of 1H2011 revenue.
Its managed rental services accounted for 7.0% in 1H2011. Other than space rental, this segment also provides management services such as cash collection, staff management and payroll service. The first store has nine managed rental customers and they are mainly PRC brands such as fashion and jewelery boutiques.
Mr Lee hopes to triple the retail area managed by the group to 3.2 million sq ft over the next 5 years.
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