As retail sales spike upward, new-style outlets and malls cater to millennial shoppers who want entertainment and Instagram-friendly backdrops more than bargain-basement prices.
It’s a golden age for outlets and malls in Taiwan, with a number of brassy mega projects completed and more developments on the horizon. Despite the rapid growth of online retailing, people still want to browse real stores in real time, preferring to make shopping more of a fun activity than just a necessity.
Millennial attitudes that prioritize engagement and a pleasant experience over a discounted purchase price give outlets and malls an edge in the fierce competition for disposable income. Family outings, tourism, and leisure spending are driving the growth of ever larger shopping entertainment centers.
In comparison, according to most experts, traditional department and discount stores are feeling the pinch and will need to adapt or die. They face a multitude of threats, ranging from the inexorable rise of online shopping to changing consumer behaviors and the greater appeal of other options.
Gloria Outlets near the High Speed Rail station in Taoyuan, for example, is part of the city government’s hugely ambitious Aerotropolis development, based around the international airport. Often cited as the first outlet-style operation in Taiwan, the open-air shopping center with its low-density stores and entertainment options began the third phase of its operations in May, after first opening in 2015.
Another 60 international brands that are exclusive in Taiwan to Gloria Outlets – such as Burberry, Wedgewood, and Bottega Veneta – have started trading. At the end of the year, a massive aquarium built by Japan’s Hakkeijima Sea Paradise in Yokohama is set to make a splash.
Gloria Outlets doesn’t serve just the nearby communities. It also attracts shoppers from Taipei, about 50 minutes away by car or 35 minutes by express on the MRT Taoyuan Airport Line. Furthermore, tourists are being wooed with suggestions for a stop at the mall before heading to the airport.
After the instant impact of Mitsui Outlet Park in New Taipei’s Linkou when it opened in 2015, the phased opening of Mitsui Outlet Park Taichung at the very end of last year has transformed the city’s port area. The 44-acre site boasts 170 stores and restaurants, in addition to a full range of leisure facilities and a 60-meter-high Ferris wheel that faces the ocean.
Building on this success, Mitsui broke ground in May on a new development, tentatively called the Mitsui Shopping Park Lalaport, in Taipei’s Nangang district. A brand emphasizing lifestyle, Lalaport is set to be the capital city’s largest outlet. Scheduled to open in 2021, the complex will house 250 stores, a five-star hotel, conference facilities, and extensive recreational and residential areas. The company is drawing up plans for another Lalaport in Taichung, and is considering outlets in Tainan and possibly Kaohsiung.
While Gloria Outlets and Mitsui are the major players in the market, a number of supersized retail developments – such as the upmarket, Japanese-inspired Breeze Nanshan in Taipei’s Xinyi district – are adopting the combined mall and outlet concept.
Other large projects include the Lihpao Outlet in Taichung, which leverages the attractions of Lihpao Discovery Land and the Malay Bay Water Park; the Taroko Park shopping center and amusement park in Kaohsiung, currently the country’s biggest retail park; and E-Da Outlet Mall, also in Kaohsiung, which advertises itself as the first “direct-sell outlet in Taiwan” for boutique brands. It also has an outdoor market, theme park, gym, and Ferris wheel.
As for the big picture, the economy seems to be picking up after a decade in the doldrums. The economic growth rate for the second quarter accelerated to 2.41% according to the advance estimate by the Directorate General of Budget, Accounting and Statistics, outpacing all three of Asia’s other “tigers” (Hong Kong, Singapore, and South Korea) for the first time in a decade.
At the same time, consumer confidence has been strengthening as Taiwanese increase their consumption based on last year’s 3% pay rise for public-sector employees and a hike to the minimum wage, which went up from NT$22,000 to NT$23,100 at the beginning of this year. Meanwhile, a Yes123 job bank survey suggests that nearly 54% of companies will be giving their employees an average raise of 3.5% in the second half of this year.
All of these factors are naturally having a positive effect on retail sales, particularly in the food and beverage sector, which is what the malls and outlet stores are prioritizing because it’s a guaranteed earner. Annual growth in F&B sales hit 5.43% in 2018 and has stayed on track with a figure of 4.93% for the first half of this year.
In terms of total retail sales – which include motor vehicles, household appliances, pharmaceuticals and internet transactions – Ministry of Economic Affairs data shows a 2.21% growth rate for 2018, a considerable improvement over 2017’s anemic 0.88%. As for retail sales at department stores, malls, and outlets, which the Ministry’s figures bundle together, the growth rate came to 1.64% for 2018, but then spurted to a rather robust 5.15% for the first half of this year.
CBRE Taiwan, part of the world’s largest commercial real estate services company, recorded a sales increase for Taipei’s retail market of 3.7% year-on-year in the first two months of the second quarter of the year, for a combined sales value of NT$629 billion (US$20 billion).
Ping Lee, head of research at CBRE Taiwan, has been following the evolution of retail in Taiwan for many years and agrees that consumers have never had it so good. “Yes, this does seem to be a golden age,” she says. “You can see it in the retail growth figures, which are showing a healthy 5% year-on-year increase, due to the grand openings of a number of outlet malls and major shopping malls.”
Lee notes that these new developments are particularly attractive to families with children.
Compared to department stores, “the outlets and new, larger malls are incorporating entertainment elements” (like cinemas and children’s play areas),” she explains. “And no matter whether it’s a shopping mall or department store, they are all trying to increase F&B sales. Taiwan people are very willing to spend on food.”
Her analysis matches a Euromonitor market research report from January, which characterizes the Taiwan market as a “competitive landscape” that has squeezed the traditional department store. “Department stores represent a declining format in Taiwan,” Euromonitor concluded. It said the sector has “faced an ongoing multitude of threats and challenges ranging from changing consumer behavior, the economy and the appeal of other options.”
Euromonitor believes department stores need to address a failing strategy and rebuild their brands to generate new interest among consumers, especially the well-heeled. “Department stores are also threatened by other successful competing channels that generally offer greater choice. Those wealthy enough to be able to shop regularly at department stores now have a greater choice of options.”
It needs to be pointed out that outlets in Taiwan are conceptually different from those in the United States and Europe, both in terms of architecture and depth of discounts. “Maybe because the available land in Taiwan is quite small, companies like Mitsui build vertical outlet malls, compared with outlets in the United States or Europe, which are usually single-story buildings spread out over large parcels of land,” says Lee.
According to Ichiro Shimomachi, managing director of Mitsui Fudosan Taiwan, the Taiwan concept of a mall is a “cannibalization” of the Western idea, with less of an emphasis on discounted items, but a big focus on attracting families and providing entertainment, plus varied food and beverage options. Essentially, he says, outlets are an upgrade on the department store concept, as they are larger, cleaner, more activity based, and a destination rather than just a place to shop.
Certainly, many customers are aware of the difference between Western and Taiwan outlets. For instance, “Seewhom,” who is from Taipei, reviewed local outlets on Trip Advisor, commenting: “There are not many discounts; strictly speaking, it can only be regarded as a large shopping center.”
Also on Trip Advisor, “Getaway810753” said: “The first impression of Taichung Mitsui Outlet is that the parking lot is big, and the second impression is that it’s really windy. The store is mainly based on catering. There is not much to buy and the discount is not very much. Strolling and eating is not the same as a desire to shop.”
Luxury brands here are less likely to provide steep discounts on goods for a number of reasons. First, they don’t have to, as the market is still growing. Second, they don’t want to negatively affect their brand. Third, they earn more selling through flagship stores in Taipei or the duty-free stores at the airport, Taipei 101, or the Ever Rich Duty Free Neihu Store.
“A few years ago, I spoke to local and foreign operators of luxury brands, but in reality, those brands are reluctant to open stores-in-stores in Asia,” Lee says. “For instance, if Chanel opened at an outlet, there would be an immediate effect on the performance of its store in Taipei City and at the duty-free. It’s also different here in that there aren’t off-season products, as such, to sell in outlets. That said, in time, when the market matures a bit, then maybe the outlet business” here will come to resemble its counterpart in the West more closely.
Asked to predict what the future holds for retail over the next three years, Lee says that outlets, malls, and department stores will all continue to increase the space allocated to F&B. The current ratio averages 20-30% but it “could eventually rise to 40-50%, and in fact some of the new shopping mall are already up to 40-45%,” she notes. “F&B sales are very stable compared with retail.”
“Also, department stores may consider allocating or sacrificing space to transform sales areas into public areas that are friendlier to family shoppers. This kind of public space makes people feel more relaxed and as a result they are likely to stay all day, increasing pedestrian traffic.”
Addressing the steady increase in online sales, Lee says she expects retailers to invest more money on online-to-offline (O2O), social media, and tech. For instance, consumers may be encouraged to order online and then pick up the merchandise at the outlet while meeting up with friends for lunch and a movie, or looking for products online but trying them out at the mall.
Outlets are “Insta-friendly” too, with plenty of areas for customers to take colorful photos to upload on social media. For Taiwanese consumers with a strong attachment to social media, this connection has great appeal. Meanwhile, virtual reality, augmented reality, proximity marketing solutions, omni-channel retail, and other tech features will continue to make shopping a richer and more immersive experience.
If department stores are to catch up with outlets, they also need to question the old format of location (typically in the city center), variety of goods, and sale offers to attract customers. Instead, they need to look at how consumers actually make their shopping decisions. For instance, the 2018 Omni-Channel Retail Report shows that while nearly 25% of Baby Boomers shop on Facebook, only 11.8% of Gen-Z does. Snapchat and Instagram are the choice of Millennials.
As opposed to department stores, outlets are typically located away from city center locations. Instead of bundling brands together, they encourage differentiation and rely on individual retailers and branded stores to be proactive in attracting customers. Stores within the outlet manage their own shop floors, promotions, the look of the store, and staff training, rather than being micromanaged and controlled by general rules and regulations as with department stores.
Instead of fighting on price, outlets compete by providing attractions and experiences. Since they are mostly located in suburban areas, they tend to be open-air and scenic, with comfortable public spaces, in contrast to cramped department stores.
As for retailers, they are keen to work with outlets because their rent is usually linked to sales performance. If sales are going well, the retailer won’t mind passing on the extra profit. But in hard times or during seasonal lows, paying less rent is obviously a big bonus.
The opposite is the case in traditional shopping areas like the East District along Zhongxiao East Road, where the same rent is due whatever the market condition, which is partly why the area has been declining.
For retailers, malls and outlets currently are the best bet because they are attractive to local shoppers and help bring in traffic to make sales through all the entertainment and F&B options they provide. This positive cycle is expected to continue for the foreseeable future. Mitsui’s Shimomachi predicts the Taiwan market will only become saturated after 10 outlets are in operation, approximately double the current number.