Testing value of the Bund: Several big-name global brands have left Shanghai’s old luxury hub

Testing value of the Bund

Updated: 2013-07-16 01:57

By XU JUNQIAN in Shanghai ( China Daily)

Several big-name global brands have left Shanghai’s old luxury hub

The summer heat is taking its toll on the crowds of tourists on Shanghai’s Bund where there arehardly any trees big enough to shade them from the merciless sun. Many seek refuge on thepavement under the shadow of the imposing old buildings that double as resting areas wheresweating tourists sit on the steps or lean against the walls outside plush fashion boutiques andjewelry stores. Nobody seems to mind. These establishments catering for the rich who made a fanfare ofvisiting the Bund a decade ago are quietly leaving one by one. Of course, they aren’t pulling out of Shanghai, which has remained a shopping paradise for richentrepreneurs. But the Bund, as the retailers see it, has fallen victim to its own historical allure.Yes, the rich still come in droves to the exclusive restaurants where they can savor hautecuisine against the backdrop of one of the most spectacular city views in Asia. But they havelargely lost the urge to wander out in the streets among the tourist crowds to buy something.

Over the past two years, the once luxury hub of Shanghai, if not all of China, the historicalbuildings along the Bund area have been losing a galaxy of brands, including Patek Phillipe,Giorgio Armani and Dolce & Gabbana.

“The Bund area is no longer the acme of luxury shopping. It cannot be even regarded as oneof the steadfast luxury shopping destinations,” said Wei Zeming, retail head of propertyservices provider DTZ East China.

While some consider it to be the latest sign of a stagnant or even shrinking Chinese luxurymarket, other industry insiders argue the Bund per se is losing its attraction for these brands,which are desperately wooing the world’s second-largest consumer market at an especially”difficult time”.

Consultants Bain & Co said the growth in sales of luxury goods cooled to a single digit on theChinese mainland in 2012 — and there looks to be no improvement in 2013. The industry’slargest growth engine, the watch sector, “dropped sharply” in 2012.

“The Bund is more of a tourist attraction than a shopping destination, let alone a luxury one,”said Zhou Ting, director of the Fortune Character Research Center in Beijing.

“Most, if not all, of the people in the area are tourists from other places in China. They comehere to take pictures, for sightseeing but hardly do any shopping. The staff selling some well-known brands have complained to us that there are tourists sitting outside their stores eatingtheir lunches, which greatly vulgarizes their brand image,” said Zhou.

Statistics from the municipality show the area receives a total of 500,000 to 800,000 visitorsevery day.

The large visitor flow was once a big appeal for retailers of luxury brands. About 10 years agothey were knocking on the doors to be allowed into what they thought would be a potential goldmine.

“Having a store on the Bund a decade ago was like having an ever-playing advertisementwatched by tens of thousands of people every day,” said Ye Qizheng, editor-in-chief ofFashiontrenddigest.com, a Chinese fashion and luxury industry online trade journal.

“A brand could go from being something that nobody knows to everyone wanting it,” he added.

In 2004, led by Taiwan entrepreneur Vanna Teng, who said she was fascinated by the beautyof the century-old Bund, the former Standard Chartered Bank Building built in 1935 combinedluxury shops, art galleries and fine dining within the seven-floor neo-classic architecturerenamed Bund 18 in a ground-breaking fashion. It has housed names such as Cartier, PatekPhillipe and Ermenegildo Zegna.

Following that development, a number of other colonial waterfront estates were renovated andrestored to the former glory of what was known as the “Oriental Wall Street” in the 1930s.

Now, however, with the aggressive expansion of luxury brands in China and overcrowding ofthe market, luxury retail real estate is moving on and the city’s shopping districts are beingremade.

Earlier this year, the almost 10-year-old flagship store of Giorgio Armani at Three on the Bundclosed. Before that, Patek Phillipe relocated its only store in Shanghai from the Bund 18 to aspacious mansion hundreds of meters away that was once the British consulate.

None of this has anything to do with the affordability of the rent in the area.

A report from DTZ China showed that the average rent of high-end commercial property was59.8 yuan ($9) per square meter per day during the first quarter of this year. The rent in theWest Nanjing Road area is the most expensive at 85 yuan a square meter a day. On EastNanjing Road, where the Bund is, rents are below average at 58.1 yuan.

The buildings along the Bund are excluded from the figure for the East Nanjing Road areabecause the luxury brands in those buildings “don’t amount to much”, Wei said, meaning thereare no more than 10.

“The history and nature of the Bund had restricted it to being a luxury shopping venue,” saidYe, the fashion website’s editor-in-chief.

But Frederic Lacour, chief marketing officer of Bund 18 Real Estate Management, is moreconfident of the building he is marketing. He refers to it, together with other 25 buildings in thearea, as “the DNA of Shanghai”.

Defining Bund 18 as “a trendsetter and tastemaker”, Lacour said he believes it, as well as thewhole area, will be, if it is not already, “the ultra-luxury shopping destination” in the city, despitethe departure of Patek Phillipe.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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