Bring online and offline together
Many retail landlords are focused on the threat of online shopping and how it will disturb their bricks and mortar business. However online shopping should not be regarded as an alien threat, but as an integral part of a retail operation.
Chongbang Group focuses on the investment, development and management of retail-anchored mixed-use projects in Shanghai and its neighbouring cities. Our projects are called Life Hubs, meaning centres of living. We launched what we called an “O+O” programme at the Life Hubs in Shanghai some six years ago, when online shopping was beginning to gain popularity among Chinese consumers. Since then of course e-commerce has grown at exponential speed.
The term “O2O” (online to offline) was commonly used but Chongbang did not think it a correct description as it implied a linear relationship between the two. However at Chongbang we believe online and offline retailing should overlap each other; hence O+O.
In the first few years of this initiative, our focus was to help online retailers to go offline. Hence Alibaba’s first online/offline He Ma Fresh Mart was opened at Chongbang’s Life Hub @ Jinqiao in Pudong, Shanghai. In the last couple of years, the focus was shifted to helping a range of offline retailers, including food and beverage, entertainment and service outlet operators, to go online.
The integration of online and offline operations has expanded the market base for both camps, and helped solved one of the biggest problems of the retail industry in China – the shortage of retailers and brands, especially home-grown brands. Life Hubs now host brands who have not previously had a presence in malls.
However, this model has also disrupted two of the traditional key performance indicators for the retail industry: turnover rent and occupancy cost ratio. Since it is difficult to track online sales out of offline platforms, charging turnover rent is likely to be a frustrating exercise for both landlords and tenants. When information on sales turnover is incomplete, the occupancy cost ratio serves little purpose.
Nonetheless retailers will pay a fair rent when landlords offer a range of services to help integrate their online and offline businesses, and we can all be relaxed about where the sale itself takes place.
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Henry Cheng
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