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Sozzi: 7 Alarming Stats on the Great China Mall Explosion

Stocks in this article: WMT GPS NKE RL COH

NEW YORK (TheStreet) -- U.S. retail sales data are out today, but let's talk some China. Western retailers continue to be obsessed with trying to sell merchandise and their lifestyles to the Chinese. Hey, can you blame them for going full force in opening stores in the country...

  • 1.3 billion live in Mainland China.
  • 50% of Chinese live in urban areas; this figure will balloon to 70% by 2035.
  • 90 cities in China have a population of 1 million or more people.
  • 10% of the population lives on $1.00 a day compared to 64% 35 years ago.
  • Total population of China is projected to reach 1.45 billion by 2028.

As an example of this obsession, Walmart (WMT) is expected to open 110 new giant locations between 2014 and 2016. Gap (GPS) will add 25 of its namesake brand utilizing a mix of full-price and outlet stores, complimenting five Old Navy openings. However, somewhat quietly, Walmart has closed seven locations in China in 2014 after exiting 11 last year. I think this development from Walmart sends a worrying signal to anyone that wants to listen regarding the most disturbing trend in China retailing now well underway: the mall expansion EXPLOSION.

Although the opening of malls will present near-term sales opportunities for Western retailers such as Nike (NKE), Polo Ralph Lauren (RL), Coach (COH) and others as shelves and racks are stocked, this boom will likely end in a big-time bust by 2020 that harms the financial statements of the aforementioned companies and the financial institutions holding the debt underlying the mall deals. Improper marketing of properties and research in its finest, ugliest form.

Here are the alarming stats to know:

  • 150 new malls opened in the top 20 Chinese markets in 2013.
  • Mall sizes are increasing, rising to an average size of 262,000 square feet in 2013 from 216,000 square feet in 2005. For visual reference: the average size of a Walmart store is 120,000 square feet.
  • Up to 3 million meters in new retail space in Shanghai will go live in the next three years, 3-4 million in Chengdu during the same period. These numbers exclude the rampant activity occurring in third and fourth tier cities in China.
  • More than 50% of the malls set to emerge from the 82 million meters of projects under construction globally reside in China.
  • The area devoted to malls in Beijing, Shanghai, Guangzhou, and Shenzen will increase by 40% in 2015. Space in 16 smaller cities is poised to double.
  • 45 new large malls will open in Beijing in 2014.
  • From 2014 through 2017, roughly 2,500 new malls in China will open.

Madness, plain and simple.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Sozzi held no position in the stocks mentioned.

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