All photos were taken at about 1 pm on a Wednesday afternoon on a sunny day in May.
Having been an appraiser of distressed malls since 1984, I considered New South China Mall to be the Mount Everest of distressed malls. I finally got to visit this mall on May 11, 2011.
Completed in 2005, it is the world’s largest mall with leasable area of 7.1 million square feet, gross building area of 9.6 million square feet, space for 2350 stores, and a 99.5% vacancy rate.
What makes New South China Mall unique is that it has been mostly vacant in its 6 years since completion, and an inspection of the premises indicates that most of the few tenants this mall started with are now out of business. Press releases from the mall indicated that the mall had pre-leasing commitments from 1016 stores and opened with 386 stores.
New South China Mall was developed by an instant noodle billionaire, Hu Guirong, and financed with a billion-yuan loan ($154 million) from the Agricultural Bank of China, which was previously one of the Chinese government's "policy banks", banks that previously made loans based on government policy rather than on economic soundness. This was Mr. Hu's first retail development project, and perhaps he thought that once he had mastered instant noodles that he could master anything.
The mall's feasibility was supported by a study from the SMR Group in Guangzhou, which forecast 203,973 customer visits per day based on the reasoning that building the largest mall in Guandong Province would attract shoppers from as far away as Guangzhou and Shenzhen. This is analogous to building the world's largest mall in Newark, New Jersey, and expecting shoppers to come from New York and Philadelphia.
While I'm not sure if Chinese market research firms have the requisite skills to perform such a study, most feasibility studies, whether in China or the U.S., are typically ordered by developers to justify an over-reaching project and are thus not designed to be objective, any way. (Most lenders are too cheap to order feasibility studies and assume, to their detriment, that the appraiser they hire will automatically determine feasibility for them.)
The Founder Group, a high-tech company created by Beijing University, recently acquired a 50% interest in this property.
People in photo are a janitor and a security guard
Here are some of the factors that have led to the mall's failure:
The mall is situated in the city of Dongguan, 50 km south of Guangzhou and 90 km north of Shenzhen. There is no doubt that the Guangdong Province of China has experienced a population explosion, with the cities of Guangzhou, Dongguan and Shenzhen having a combined population of over 25 million residents.
Dongguan is a sprawling industrial city of 7 million residents and about 900 square miles of incorporated area, more than twice that of Los Angeles. Dongguan does not match the affluence of the cities of Shenzhen and Guangzhou, though. If Shenzhen and Guangzhou were New York and Philadelphia, for example, Dongguan would be Newark, comparing cities based on personal wealth. Annual GDP per capita is $13,750 in Guangzhou, $14,245 in Shenzhen, but only $8187 for Dongguan. Similar to Newark, too, is its reputation for a high crime rate compared to its neighbors.
Of Dongguan’s 7 million residents, 5.2 million are classified by the Government as “permanent migrants”, most of who are young women who have come from rural areas to work in factories – not the sort to hop into a BMW to search for a Louis Vuitton purse at the mall. Most do not have cars. It is estimated that 75% of these migrant workers earns less than $200 per month, and some of that is sent home to even poorer relatives.
Furthermore, the mall is located in the less affluent Wanjiang district of the city, where the factories seem to be low-tech, manufacturing things like cabinets and display shelves and using mostly unskilled labor. (This area was described as farmland at the beginning of the mall's construction in 2002 but is now a fully urbanized area.) Unlike typical U.S. urban form with dying central cities and middle class flight to the suburbs, China's urban central business districts are thriving centers of commerce, and suburbs are for factories and low income housing.
Also complicating mall feasibility is the generally low level of household income in China, estimated to range from one-tenth to one-sixth of U.S. household income (and not officially measured), and the Chinese are known as being savers, too. Too much attention has been spent on the relatively small class of nouveau riche known for its conspicuous consumption. (See my blog post on Macau.) Western-style malls are a recent arrival in China, and seem to work better in the wealthiest cities, such as Shanghai, than second-tier cities like Dongguan.
Despite Dongguan’s recent growth, there are now widespread reports that factory workers are leaving for better paying jobs in Shanghai and other high-value manufacturing cities.
Super-regional malls are dependent upon freeway accessibility. For instance, the 520-store Mall of America in Bloomington, Minnesota, is located near the junction of Interstate 494 and Minnesota State Highway 77. The 800-store West Edmonton Mall in Edmonton, Alberta, is located near the junction of the 2 and 216 freeways in Edmonton.
On the other hand, the highways leading to the New South China mall are tollways owned by Dongguan Development Company Ltd (not the government), with tolls ranging from 17 to 25 yuan (about $2.60 to $3.85 -- customary tolls for New York City drivers, but not for underpaid Chinese workers).
There seems to be a lack of convenient public transportation to the mall, too, considering that the mall is not in a central location and Dongguan itself is a sprawling city that has grown without the benefit of rational urban planning. Dongguan has grown without urban planning from 28 factory towns that ultimately grew into each other. With an area of 2500 square kilometers, most Dongguan residents would need to take multiple bus rides to get to the mall.
There is also an inter-city bus station with an entrance approximately one km west of the mall's entrance, but no easy pedestrian access to the mall. Even then, inter-city bus fares are typically more than $15, once again too expensive for the average area resident.
To get to the mall, I took a train from Shenzhen to central Dongguan and then took a 55-km cab ride the rest of the way, having to also pay for the cab driver's 98 yuan in tolls (about $15) for the 110 km round trip. The drivers at the taxi stand all knew about the mall, yet my driver could not find the mall when on the same street and had to call the mall several times before the phone was answered. When a local taxi driver cannot find a mall that has been the world’s largest for the last 6 years, that mall is indeed in trouble.
The mall site is mostly obscured from the main road by its high building profile (4 stories) and minimal signage. The cab driver and I almost passed the mall before realizing we had reached our destination, as the entrance, as seen in the satellite photo, is only about 100 yards wide. The only leased spaces were the ones visible from the main road through this 100-yard aperture.
No anchor tenants
There is no department store currently anchoring this mall, but the official mall web site states that the mall was originally supposed to be anchored by 1) a Causeway Bay department store of more than 400,000 square feet and 2) a KFC (?!). Other intended anchor tenants were OMOMO out of Hong Kong, OBI out of Germany, and Sundan Electronics. I do not know if these other stores ever opened.
In keeping with the mega-mall concepts of the Mall of America and the West Edmonton Mall, New South China Mall is situated around a miniature amusement park with children’s rides and canals with gondolas, like the Venetian in Las Vegas. At the time of my visit at 1 pm on a Wednesday afternoon, there were no shoppers, but several dozen school children in the amusement park. Out of about a dozen tenants, the three tenants doing business at that time were McDonald's, KFC, and Kungfu (a Chinese fast food restaurant with Bruce Lee as its emblem), all visible from the street and also patronized by amusement park patrons.
The theme park concept was said to be inspired by the success of the Window of the World theme park in Shenzhen, but Window of the World is almost 20 years old and was the original theme park in Guangdong province, which now has 40 theme parks, 12 of which were bankrupt as of 2007.
Hark! A customer approaches McDonald's, the mall's leading tenant.
Other Functional Problems
I found it odd that there were no mall maps to be found in the world's largest mall. Any other Western mall one-twentieth its size would have maps.
I was also surprised to find myself trapped inside the mall, too, when trying to exit to the interior courtyard/theme park, which means that the shops are conversely just as inaccessible from the theme park. There are too few entrances to the enclosed shopping area. There were no shoppers or open stores in the enclosed areas I visited, and the entrance to the McDonalds was closed from the interior of the mall.
The design team for New South China Mall visited more than 100 malls worldwide to collect the best design ideas, but they apparently focused only on aesthetics and not on functionality or accessibility. It is an attractive setting, with re-creations of seven different parts of the world, such as Rome, Paris, and Amsterdam, but little thought was made to how customers would find the mall or move around in it once they got there. There is a replica of L'Arc de Triomphe, though.
Having previously lived in America’s most Chinese city for several years (Monterey Park, California – 56% Chinese) and traveled to many Chinese destinations, I have never known a Chinese community to be under-retailed (having a lack of stores); theirs is an entrepreneurial culture. The SMR Group's feasibility study assumed the trade area to be the entire Pearl River Delta (including the larger and wealthier cities of Guangzhou, Shenzhen and Hong Kong), assuming that building the world's largest mall would effective draw away customers from the 15 other super-regional malls (more than 1 million square feet) that were built in Guangzhou and Shenzhen between 2001 and 2003, most of which also suffer from high vacancies. Could New South China Mall be way more retail space than Dongguan needs?
The failure of New South China Mall is also symbolic of a fundamental disconnect between mall development and actual income levels throughout China as empty luxury shopping malls start cluttering the nation. Household incomes are still well below those of more developed Asian states such as Singapore, Hong Kong, Taiwan, Japan and South Korea. The recent decade of mega-mall development in China reflects a naive hubris that presumes that the biggest mall will therefore attract the most shoppers.
PS: For hilarious hyperbole and misuse of the English language, be sure to visit the mall's English language web site www.southchinamall.com.cn/english. The mall is described as "a pacemaker" (perhaps meaning "pace-setter", a pacemaker being the little machine that keeps Dick Cheney's heart from stopping), and "a grand symphonic epic with high tone of traditional wealth revolution, investment revolution, consumption revolution and leading commercial trend of the time and vogue life style",..."highly hailed by experts, scholars, authoritative media and the society, as an international commercial empire". It even discloses that some Chinese economists were initially skeptical of the feasibility of the mall, but now "South China Mall has demonstrated its elegancy and glory, and is bound to be a miracle of commercial history." That was written a while ago. Now the mall is experiencing "strength-accumulating quietness" as the mall president, Kun Liu, has announced another 200,000 square meters (2,150,000 square feet) to be developed in an effort to somehow finally give the mall the critical mass it needs to compete against smaller malls (his opinion, not mine).
I'm going in that direction this weekend and I'd like to take a look at the mall. What did you tell the taxi driver? Do speak Chinese? Or did you have the Chinese address? Thanks!
I had someone write taxi driver instructions in Chinese, which included:
The name, address and phone number of the mall.
"Please use the meter. Please wait for me at the mall and then return me to the same rail station."
I was advised to use only the green licensed taxis, mainly for the same reasons you would do so in Mexico.
The mall's name in Chinese:
There is a similar mall in Juarez, Mexico - on Lincoln Avenue - built entirely out of hubris and erroneous market studies. The only functioning tenant is a very popular restaurant. It is much, much smaller than this monstrosity, of course, but the scale of the failure is the same - 100%.
Wow... what a terrible waste of a mall! Its very spooky and sad to see these pictures.
Vernon, although I agree to most the weaknesses you point out (location is actually a little better than you portray it) - they still fail to explain the scale of the failure. There is a market (especially today, with spending power maybe 1-2 times higher than in 2005) and there isn't enough competition to explain why it is SO dead. And while most of the covered mall area is hidden away behind the amusement park - there are useful mall stretches, not least outdoor. Look anywhere in China and you'll find hundreds of restaurants - why so few in SCM? There has to be huge management issues to explain why not even the anchor stores and restaurants have opened/remained open. Supported by the amusement park, A supermarket, a mid to mid-low department store, the DIY, and 30-40 restaurants should have been able to make it already a few years ago. Another 100 or so stores and restaurants could have followed up to now. But nothing - it can only be down to a string of early misstakes (on top of your list I'd add anchor selection) and a sustained mismanagement of almost epic dimensions.
In Asian culture you do not stand up to someone who has a higher status than you and point out errors. I blame failed projects such as this one on that plus the common belief that things will just go up all the time in a sort of "build it and they will come" way.
It appears this mall's website is no longer working. Have they finally realized this giant mistake to be the white elephant it clearly is? There's just no topping Chinese hubris among all the hubrises of the world. They just don't understand WHY certain things work in the west, and why they can't emulate them.
Fascinating read, by the way.
You should see what they're doing here in Toronto. Well, purporting to do here in Toronto. There are no less than six MASSIVE Chinese malls "under development." They've been at this stage for many years, most of them. There is only ONE Chinese mall that actually continues to succeed here, and that's the famous Pacific Mall. Any others that HAVE been completed, sit largely void of either tenants, REPUTABLE tenants, or customers. Yet they still constantly try to one-up each other by touting the imminent arrival of some colossal temple of Asian shopping and hotel services, even as they're existing malls are OVERRUN with counterfeiters of every stripe. It would be laughable were it not for the very real fear that some of these future white elephants will actually come to fruition, attracting even MORE counterfeiters to take up residence in them, while offering NO VALID ALTERNATIVE to Pacific Mall, only shinier surfaces. I love Hong Kong culture to death (it's why we even have a Pacific Mall in the first place), but this "new Chinese" mindset simply mystifies. As the previous poster said, they're so obsessed with catching up to the west (even when they're IN the west!) that they operate under this ridiculous "build it and they will come" mantra, and time and again they've only proven that they DON'T come, and their shiny structures sit barely occupied and bleeding money. Thankfully, so far, about FIVE such projects here have yet to even turn the soil on the properties they own, so we can only be hopeful that they never, ever do.
I looked at the boxes to check in response to this article: funny, interesting, cool; however, I didn't find the one I sought: "tragic" or "ideal representation of hubris." I can't say I didn't laugh at the absurdity of the mall being anchored by a KFC though or the fact that the best design features of the world's malls were utilized to create this mall (though neglecting function or accessibility). It's a sad tail. Why don't they put something useful in the space, that could revitalize the region, like say...a university? One could convert part of the space to a living area, but still how would people get to and from the area?
Google Blogger provides the choice of boxes to check (funny, interesting, cool), and I have no control over that.
I always welcome reader feedback, either positive or negative.
I have seen other vacant malls end up being converted to public uses, such as schools or government offices. I once appraised Shepherd Mall in Oklahoma City twice a year as it lost tenants, but when the downtown Federal building was blown up by Tim McVeigh in 1996, Shepherd Mall became Oklahoma City's new Federal building.
The saddest irony is that land used to produce food in a country with very little arable land...
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I don't think "build it and they will come" is the problem here. You see, here in my city in The Netherlands, they thought exactly the same when they build a new shopping center next to the original one Downtown. At first, it seemed like NSCM: hardly any tenant wanted to be there. But the owners (a commercial company) kept talking to tenants. And despite the high rental prices (which are still the same as of writing this post!), some more stores moved or opened up. The city's cultural department also started hosting cultural activities there which brought in some customers. As I'm writing this, there are not as many vacancies anymore in this new part and there are more and more customers coming.
So yes, "build it and they will come" works. You just need to keep talking and convincing stores and chains and do cultural stuff. Then slowly but surely the amount of vacancies will lower and more customers will come.
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I remember here in Malaysia's Klang Valley to you do get malls as good as Dead Malls too!
I was visited by a friend who used to live in USJ area (Where Summit USJ Mall is) and we decided to enter the mall. Now, this mall is really remote and it's quite tough to find a decently-priced & convenient transportation there as it's situated near one of the busiest highway (KESAS Highway) without a really properly-built stand.
As I entered the mall, many of the shops are closed. Very few visitors are in the shop and the area seems dilapidating (collapsed plaster ceilings, dangling live wires, uneven cement with sinking planks, etc) and I thought, oh well, maybe it's under construction. The next thing is it's full of jute wrappings here and there and you don't see any sign of "New Opening/Opening Soon", instead; lots of "To Let" signs here and there. There are a few shops left open here and there and mostly are clearance shops with musty ventilation. There's even one Musical instruments shop, perhaps one of the largest amount of recond and custom-designed common-graded grand pianos there but almost no visitor at all (I wish I can go in and just play on any of them but the whole place looks spooky)! Perhaps the only attraction are the telco gadgets booths and food outlets there which are doing averagely well (since visitors mostly look for these).
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CNN reported that the New South China Mall is current under a renovation of the once dead mall, and there are new stores to the N.S.C.M. If the total number of stores is up from 47 to the larger number of stores that based in the western world as well as Chinese based stores seen from the across the country. New South China Mall is Rising from the dead and into Shopping Mall Heaven.
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