Outlet malls in Pudong Photo: Ni Dandan/GT

With the convenience and competitive prices of E-commerce, shopping in real bricks-and-mortar stores is no longer the only choice for consumers looking for bargains and quality items. Traditionally outlet stores were attached to factories and only sold the products manufactured in those factories. But today outlet stores stock a variety of brands and the concept of outlet stores and malls is booming.

The business model for modern outlet stores and malls involves them being established, often in out-of-the-way areas where the land or rents are cheaper and seeing them specialize in selling heavily reduced brand-name goods that have been over produced or are out of season.

While conventional wisdom would suggest that ordinary bricks-and-mortar stores are struggling to compete with online traders, international outlet operators are continuing to stake claims in Shanghai. The attractively landscaped Florentia Village in Pudong opened its doors in January this year and is one of the 10-plus outlets that have sprung up across Shanghai in the past few years.

Rapid growth

The rapid growth of outlets in Shanghai and across China has been a concern to some retail industry insiders. In the US, where this business format first emerged, there are about 300 outlets. But in China, since the first outlet appeared in Beijing in 2002, around 500 have opened to date.

Figures show there is a bright future for outlets. In the first four months of this year, traditional shopping malls in Shanghai recorded an average year-on-year turnover drop of 4.2 percent but, in the same period, the city's outlets saw their revenues grow by as much as 49 percent, according to the Shanghai Commercial Information Center.

The Bailian Outlets Plaza in Qingpu is a big local outlet success story - its 2.08 billion yuan ($326 million) turnover for the first half of this year was the highest of all outlet centers across the country.

Not all the city's outlet operators are that lucky. While the Qingpu outlet has seen continuous expansion over the past few years, most of the other outlet projects are still struggling and some have closed.

Just before the opening of the Florentia Village outlet, there was heated debate about whether the city could support so many outlets. "As the market grows larger, naturally more competitors will join the outlets business here," said Maurizio Lupi, the managing director of Florentia Village.

The commercial information center has predicted that by the end of this year, the city's outlet stores will be worth 6 billion yuan. Last year their trade was worth 4 billion yuan. The center said that Shanghai residents are expected to spend an average 240 yuan per head in these outlets in 2015.

Business aside, however, Tu Haiming, a member of the Shanghai Committee of the Chinese People's Political Consultative Conference, has suggested that better planning is urgently needed for these outlets, which have been troubled by a lack of first- or second-tier brands, poor quality products and substandard services.

A new competitor

By the end of August, Florentia Village, which sits close to the Pudong International Airport, had seen 73 percent of its store spaces open. The village, which is designed to host more than 130 brands, had welcomed more than 1.3 million customers over the past six months.

On a quiet weekday morning, even though the staff outnumber the customers, the salesmen and women are not unhappy. "We get more customers at weekends. But, more importantly, the percentage of customers who make purchases here is high," said Jessica, a saleswoman at the Max Mara store, where discounts of up to 70 percent are offered.

Jessica said the new store's turnover almost matches the turnover of their store at the Bailian Outlets Plaza in Qingpu even though there were many more people crowding that store than there were at the Florentia Village. "The discounts here are impossible to find at downtown shopping malls," she said.

At the outlet store of Marc by Marc Jacobs, where an average 50 percent discount is offered on stock, salesman Jackie Zeng said that they frequently adjusted the prices of goods based on their popularity. "If they aren't sold for more than two weeks, we discount them further. If a purse or handbag is the only one of its kind left on the shelf, we will discount it even further," he said.

At Céline's first outlet store on the mainland, a classic Trio messenger bag is priced at a little over 4,500 yuan, almost the same price as charged at the Galeries Lafayette in Paris. But the bag is only available here in one color.

"The prices here are very competitive even if you compare them to our stores in Italy and France. But, honestly, what you find here are the less popular designs or colors that you would see in traditional shopping malls," explained a saleswoman named Sunny.

For the first half year of its operation, Lupi said that the village recorded a turnover worth 450 million yuan. "A successful outlet center takes more than money and land. It requires a team of seasoned operators, a strong relationship with brands and a deal of knowledge in standardized and international operation management processes," he said.

The company that owns the Florentia Village in Shanghai, the RDM Group, is a fashion retail company in Italy and opened its first outlet in China in Tianjin. This center, the Florentia Village Jingjin Designer Outlets, pocketed in 1.6 billion yuan in the first half of this year and ranked the third on the national list of earners.

"Understanding the Chinese consumer is crucial. We take time studying their demands and their shopping behavior. We actively communicate with our local partners to optimize our outlets and localize the management systems. That is to ensure our strategy meets the global standard of excellence but, at the same time, local nuances can be retained," said Lupi.

Zheng Yuanlai is the deputy president of the Sasseur Group which also runs outlets. He said China has as many as 350 million middle-class consumers who are all well-educated, logical and are fond of particular brands.

"They are looking for quality products but they are also practical and smart. They know how to compare the price-performance ratio," Zheng said at a meeting discussing the future of China's outlet industry in Kunshan earlier this year.

Outlet malls in Yangpu Photo: Ni Dandan/GT

Not here to shop

The middle class doesn't miss a trick. That's why, when some businesses opened under the name of a leading outlet plaza and in a more accessible location, customers and profits have not followed. On a Wednesday morning, dozens of people queue outside an outlet mall in Yangpu district, waiting for it to open at 11 am. But most of them aren't there to shop.

"It's a nice place to walk the toddlers - there are very few shoppers here and it's a nicely spacious area. And there are pleasant river views. This is where us retired people who live close by often come on weekdays," said a 60-something woman with a baby in a stroller. "But at weekends the place gets crowded," she said.

This riverside venue, the Shanghai International Fashion Center, opened in 2010 after factory buildings there were renovated. Although it shares the name of an outlet center, it's hard to find any top-tier international brand names here.

"What makes an outlet center genuine is that it must have a good number of luxury brands and some international second-tier or third-tier brands or some big names in sportswear," said Qi Xiaozhai, a researcher with Shanghai Commercial Information Center.

"Then discounts of at least 50 percent should be on offer. Extra discounts at 60 percent or even 70 percent off should be available as well for some goods," Qi said.

However, at this outlet center in Yangpu, there seems to be more emphasis on fashion shows and a promotional store for independent domestic fashion designers where no discounts are being offered.

Inside this outlet mall there are stalls selling clothing brands you might find in traditional shopping malls and some definitely cheap, low quality brands. "Outlets are supposed to be where leftover products or out-of-season luxury or internationally famous brands can be found," said Liao Chengyi, the marketing director of Global Luxury Brand Center.

"These days many outlets in the city display brand-new and in-season designs, but the brands are names you've never heard of. Outlets are not meant for every brand or manufacturer. But here in China as long as you pay, you can have a space in an outlet center," Liao said.

As well as the outlet in Yangpu, other malls in Baoshan, Putuo, Zhabei and Xuhui face similar problems. But their locations seem to have at least kept them alive, unlike the unfortunate Global Outlets Park in Fengjing town, Jinshan district.

Spreading over 400,000 square meters and costing 1.6 billion yuan, the Global Outlets Park in Jinshan opened in September 2008. Less than six years after its opening, it closed in July last year.

Even on public holidays, this park used to see more security guards than customers. A daily visitor flow of fewer than 10 people was normal although on holidays tour groups could visit. Of its 4,000-plus business spaces, fewer than 30 stores were actually operating before the park shut down.

Although in April last year, media reports said that the park was exploring new channels to bring in internationally famous designer brands, it was revealed soon afterwards that the park owed its 80 employees more than four months of unpaid wages.

According to Maurizio Lupi, the managing director of RDM Group, the resources of the big brands are essential to the successful operation of an outlet mall. "We have long-term, stable relations with Italian luxury brands so that we are able to attract the best luxury brands to our outlets. For an outlet mall, quality is the key and authenticity is one part of defining that quality."

Restrictions needed

Liao Chengyi agreed, saying that if China's outlets didn't restrict the number of brands allowed they would not survive.

The Global Outlets Park was not the only outlet venture to crash and burn. In Qingdao, its first outlet closed in 2010 only a year after its opening. In 2011, the first outlet mall in Ningbo that had opened in 2010, shut down.

While the Jinshan Outlets Park is closed, the Bailian Outlets Plaza in Qingpu continues to thrive. Its monthly revenues have soared from 70 million yuan in April 2006 to more than 300 million yuan currently. And with the launch of the neighboring Mega Mills in 2013, another outlet center that emphasizes leisure and entertainment, some 260,000 square meters of outlets now form a circle in Qingpu in the southwestern part of Shanghai, offering more than 650 brands.

The Florentia Village won't be by itself in Shanghai for long either. Shanghai Village, another outlet plaza covering 50,000 square meters will open its doors this autumn. At least 100 brands will be found at this new venue. With Disneyland opening next year, these two outlets are expected to enjoy the benefits of the extra visitors.