Value Retail and TIAA bank on luxury outlet malls in China

After Chinese tourists flock to destinations in the UK and Europe to stock up on luxury fashion and other goods, British companies are keen on offering Chinese customers these goods closer to home and at a discount. Value Retail, London-based real estate developer and operator of luxury

shopping outlets in Europe, for example, plans to invest about 450 million US dollars in three new retails outlets in China over the next five years, with the first to open on May 15 in Suzhou in Eastern China.

Suzho

u at the western shore of the Yangcheng Lake Peninsula is a smart choice as the historic city is already a popular tourist destination – 94 million tourists visited in 2013 alone. In addition, its proximity to Shanghai (about an hour’s drive) taps into another market of 40 million potential customers. "Prices here are cheaper compared to the stores in the city center, and I come here because it's on my way home from work," confirms Shanghai resident Qian Shuwen about Bailian Outlets Plaza in west Shanghai when talking to Wall Street Journal.

’Chic outlet shopping’ is the tagline

The new luxury outlet shopping center is called Suzhou Village or “Yi Ou Lai Suzhou” in Chinese. The new shopping destination, modelled after an Italian village complete with Roman architecture and ornate fountains, is sprawled over 35,000 square meters and houses over 100 stores, cafes and restaurants. It is just the first of a whole collection of planned ‘Yi Ou Lai’ villages in China, a name that roughly translates as ‘graceful abundance from Europe’.

Tapping the aspirations of China’s growing middle class, the concept of the luxury outlet mall is simple: attract those customers who usually shirk brand-name stores because of high prices and high taxes. At Suzhou Village, a genuine Burberry trench coat can be had for about 9,000 yuan (1,450 US dollars), or 40 percent less than the original retail price in non-outlet stores in China.

"Affluent Chinese shoppers have increasing brand awareness while seeking greater discounts," confirms Kenny Sim, portfolio manager at TIAA Henderson, another London-based real estate developer that is planning to invest in China: TIAA Henderson Real Estate will first expand an existing outlet in the northern city of Tianjin and then open two more in Shanghai and the southern Chinese city of Foshan. By next year, the company plans to acquire more sites in central, west and north China.

Those who fear that the discount strategy may not work well for luxury brands should consider that doing so outside their own stores in designated outlet malls will help preserve the brands’ image of being exclusive and pricey. In addition, it’ll help them clear inventory that has built up over time. If luxury outlet malls really are a win-win situation for brands and consumers will be seen in the long run though.

Images: Suzhou Village