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Shopping Centers Today -> May 2002
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TAIWAN’S ECONOMY SLUMPS
But mall building continues apace. Will it end in tears?
By Susan Thorne
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| FE21 Mega is a mall owned by a department store, a common format in Taiwan. |
Taiwan got off to a late start with its shopping center industry and has been hurrying to catch up for the past three years with a flurry of mall building. A substantial economic slump in the past year, however, indicates that some challenging times may lie ahead for the country’s existing and future shopping centers.
Part of Taiwan’s late start on mall development can be blamed on zoning restrictions. While Indonesia, Malaysia, the Philippines and Thailand acquired shiny new shopping centers in the 1980s and 1990s, Taiwan’s 22 million inhabitants had to do without. But changes to Taiwan’s land-use laws in 1996 gave a green light to mall construction, and the sector multiplied from one shopping center in 1998 to seven at the present time, with an additional 10 in the pipeline. The total is much higher if one counts department store shopping centers, in which all the retail spaces are owned by the department store.
This rapid progress, however, is taking place against a background of economic troubles. The U.S. economic slowdown and the implosion of the information technology industry have greatly reduced world demand for the high-tech products such as computers and conductors that are Taiwan’s specialty and make up more than 60 percent of its exports. The national economy slowed sharply in the first quarter of 2001 and continued to deteriorate, especially after the Sept. 11 attacks on the United States, said Calvin Wang, a managing director of Jones Lang LaSalle, Taipei. Major corporations have begun to lay off workers, and unemployment has climbed from just under 3 percent in 2000 to 5.2 percent in January 2002, a nearly record high, Jones Lang LaSalle figures show. The results are starting to show in consumer shopping habits. Wang said that concerns about unemployment are causing people to spend less; retail consumption has declined, and value retail has become more popular.
Yet new malls keep coming. A North American developer might postpone or mothball a project when the economic outlook is poor, but it’s difficult to respond to changing conditions in the same way in Taiwan because of the longer lead time to bring a mall to completion.
“The development process takes four to five years; it’s very different from the U.S.,” Wang said. Much of this delay is the result of time-consuming zoning changes, permit processes of various kinds, and the vertical configuration of many malls, which means longer construction periods.
“People persist in opening their shopping centers because they’ve planned them for so long,” he said. “They won’t stop just because the economy is bad.” On the positive side, a large proportion of Taiwan’s shopping center development is being undertaken by construction companies that can ride out tough times because they have deep pockets and are less dependent on bank financing, he pointed out.
Others, however, may be left carrying too high a debt load for too long because of the economic slowdown, suggested Victor Liu, chairman of the Taiwan Shopping Center Development Council, Taipei.
“The return on their investment could take longer than anticipated,” he said, identifying inexperience as part of the problem. “We don’t have experience in shopping malls, so developers may have spent too much.” But Liu noted that the recession will motivate owners to become more cost-efficient. “Difficult times will make them learn.”
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| Dream Mall will have retail and entertainment on 11 levels. |
With retail spending on the decline and total retail square footage rising, competition for the shopper’s New Taiwan dollar can be expected to intensify. To attract customers, malls need novel retail and entertainment offerings and customer-friendly design, said Jean-Louis Bourgier, vice president of operations at Far Eastern Department Stores, Taipei. His company has eight department store-based shopping centers, including the flagship FE21 Mega, with 72,000 square feet of retail space, which opened last October in the southern city of Kaohsiung; a ninth center is to open in Tainan this summer.
“Of course, it’s not ideal to open in these times,” said Bourgier, who estimates that customer spending in Taiwan has dropped by 5 percent to 10 percent compared with two years ago. “So you have to have something new. When you bring something new to Taiwan, people really react.”
Entertainment features are part of this equation, he said. FE21 has a 16-screen Warner Village cinema megaplex (Taiwan’s second-largest), plus 42 restaurants and other food outlets and two food courts. New retailers, particularly those with Western brand names, are another powerful customer magnet. FE21 has branded boutiques for Escada, Ferragamo, Moschino and other fashion labels, plus most Western brands of cosmetics. “In Taiwan if you don’t have international tenants, you’re dead,” Bourgier said.
Competition for customers is one issue, but competing for the best tenants could be a problem for future malls because there will be so many opening in a short period of time. With department stores like Far Eastern setting up their own mall-like centers in Taiwan, there are fewer anchor possibilities for shopping centers; cinemas and hypermarkets rather than department stores are filling that role in many cases. Liu predicts that attracting anchors and prestigious tenants may become problematic for out-of-town malls in particular.
For the moment, the main retail rivalry is not among existing shopping centers, but between new malls and the more traditional types of retail. Customers have responded enthusiastically to the advent of shopping centers in Taipei, Wang said, to such an extent that Main Street store sales in the capital have suffered and trade areas are changing.
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