New Malls Attracting Major Brands To Inner Mongolian City, But Is The Local Demand There?#
Wanbo Square in the Kangbashi New Area
To many, Kangbashi New Area on the outskirts of Ordos, Inner Mongolia -- a city that's become wealthy through its vast coal and natural gas reserves -- is a case study in the excesses of China's real estate market. But to a growing number of luxury brands, enticed by the extravagant spending of the metro area's wealthy residents, Ordos is an increasingly attractive destination. Built for an expected population of 1 million people, Kangbashi is currently home to anywhere from a few thousand to 28,000 full-time residents (depending on your source), giving rise to the city's widespread reputation as a ghost town, a monument to the overheated nature of the Chinese real estate market.
Looking at the city's new district, the gleaming high-rises, parks, culture venues and malls of which appeared seemingly out of nowhere after several years of frenzied construction, the New York Times wrote last fall:
City leaders, cheered on by aggressive developers, had hoped to turn Ordos into a Chinese version of Dubai — transforming vast plots of the arid, Mongolian steppe into a thriving metropolis. They even invested over $1 billion in their visionary project.
But four years after the city government was transplanted to Kangbashi, and with tens of thousands of houses and dozens of office buildings now completed, the 12-square-mile area has been derided in the state-run newspaper China Daily as a “ghost town” monument to excess and misplaced optimism.
Interestingly enough, despite the snail's pace at which residents have settled down in Kangbashi, retailers are apparently flocking to the city in the hopes of tapping the area's ultra-wealthy and notoriously free-spending nouveau riche. Noting the increasing frequency with which Ordos millionaires show up at their boutiques in Europe, North America and Dubai, major brands are setting up shop in the city as eager automakers take part in events like last September's Ordos International Auto Show.
This week, the Inner Mongolia news portal North News takes a look at the Ordos luxury industry, offering a glimpse into a high-end market that is quite literally starting from scratch (translation by Jing Daily team):
On September 30, 2010, the highest of high-end brands took part in the first Ordos International Auto Show, an event that saw an attendee plunk down a deposit on a 38 million yuan (US$5.8 million) Bugatti roadster within the first hour. In the first day of the show, sales exceeded 90 million yuan (US$13.8 million), a total that left exhibitors stunned.
The level of luxury consumption among Ordos residents isn't only reflected in their high-end automobiles, we can also see it in their choice of watches, handbags, and clothing. In all of these areas, they've become an indispensable consumer group.
One supermarket owner in the Dongsheng district said that people who live in the area often travel overseas, bringing back with them an incredible number of large and small bags. "It's common to see someone from our community come back from a trip abroad having spent several million [yuan]," he said.
But as the trade and logistics director of the Dongsheng district Chamber of Commerce said, "In Ordos, if you say 'luxury,' we've got some. But if we're talking about the scale of our luxury market, it isn't fully formed yet."
Nonetheless, many companies have come to Ordos to give its luxury market a shot.
In January 2010, the Ordos City Federal Holding Group Co. invested 250 million yuan (US$38 million) to build the high-end Inner Mongolia Wanbo Square shopping plaza. As manager Wang Qingyu said, "I dare say that we're the first shopping mall in Ordos to specialize in top-tier international luxury brands, high-end watches and fine jewelry. Everything in our mall is priced above 10,000 yuan (US$1,537)." Brands that currently operate at Wanbo Square include Montblanc, Piaget, Jaeger-LeCoultre, Tissot, [and Chinese brands like] Colourful Yunnan. In August 2010, Wangfujing Department Store announced it would enter Ordos Taikoo Plaza mall. In 2011, Ordos will also get its first Parkson department store.
"When you hear about Ordos, everywhere people are talking about its booming wealth. After checking it out, it looks like the city has great potential. If conditions are ripe, [my company] plans to enter the Ordos high-end crystal market in June 2011," one Taiwanese businessman said.
While business owners, or at least those who spoke to North News, seem to be optimistic about the Ordos high-end market, there's definitely a Wild West element in the city that should convince luxury brands to take their time before setting up shop. Wealthy, big-spending Ordos coal bosses might be an attractive, if not particularly tasteful, demographic, but they seem to be just as willing to do their luxury shopping in Beijing or as far afield as Europe as they are to shop locally if the mood strikes them. Of course, despite the fact that the Ordos market is untested and risky, many business owners see great potential for reward. As one unnamed "manager working in high-end luxury goods" told North News,
"As the population grows and the economy develops, the luxury market in Ordos will rapidly flourish. This is an inevitable trend. Now this market is immature, so business owners are scrambling to seize a piece."