Shanghai Shopping. (China Research)

By Desvaux, Georges; Li, Guangyu et al. | The McKinsey Quarterly, Spring 2002 | Go to article overview

Shanghai Shopping. (China Research)

Desvaux, Georges, Li, Guangyu, Fenhirin, Jacques, The McKinsey Quarterly

Shanghai wants to know the secret of becoming a world-class shopping and tourist destination. A booming economic and trade center, the city is now trying to transform its Nanjing Road into one of the world's leading retail and entertainment districts. But although the street is China's best-known and most successful commercial thoroughfare, Shanghai local-government officials and businesspeople think it is far from realizing its potential, particularly in a city undergoing spectacular modernization in hopes of rivaling Hong Kong and Tokyo.

In order to understand how to turn a national shopping area into an upscale international one, local and regional officials last year reviewed the qualities shared by the world's leading retail districts-in particular, Carnaby Street and Oxford Street, in London; the Champs-Elysees, in Paris; the Via Montenapoleone, in Milan; Las Ramblas, in Barcelona; Michigan Avenue, in Chicago; Times Square, in New York; the Marina, in Singapore; and the Ginza, in Tokyo. (1)

To be counted as world-class, a district had to have a worldwide reputation, a high traffic volume, and strong revenues. The nine also had in common an interesting history, distinctive architecture and business formats, and a strong mixture of retailing, places to eat and drink, lodging, entertainment, and culture. Further shared attributes were exciting and innovative anchor-store tenants, a convenient public infrastructure, a pleasant environment, and strong public-private partnerships (Exhibit 1, on the next page). Four districts in the study were of particular relevance to Shanghai: the Champs-Elysees has itself passed through a restructuring in recent years; Michigan Avenue has made a determined effort to improve its economic foundation; Oxford Street has chosen a mass-market focus; and the Ginza is the most famous large retail district in the whole continent of Asia.

Compared with these, Nanjing Road came out poorly (Exhibit 2.) Although renowned domestically--it attracts world-class foot traffic of one million shoppers on weekdays and two million on weekends--99 percent of its visitors are local residents or domestic tourists; few non-Chinese people have heard of the place. And while its annual sales do come to some $1 billion, this is only about half of the $3 billion that the top commercial streets generate; moreover, an average visitor to Nanjing Road spends less than 30 percent of what visitors to them spend. Many elegant buildings from the first three decades of the 20th century are covered with neon signs and billboards, denying the street any architectural distinctiveness. The Champs-Elysees, the Ginza, Michigan Avenue, and Oxford Street, by contrast, all have architecture of interest to visitors.

Retailing dominates on Nanjing Road, with the three biggest department stores--including Number One Department Store, the largest in China--accounting for two-thirds of its revenue. The street experience, while upbeat, can be uncomfortable, offering few relaxing places to sit or eat and very limited green space. There is also a dearth of entertainment and cultural venues. The Champs-Elysees is a cocktail of trendy retail shops, restaurants, cafes, and movie houses, and the Ginza is a leading art center as well as a place for shopping. By contrast, Nanjing Road gives shoppers no incentive to linger. The local merchandise, displays, and marketing campaigns are lackluster. Tenants are mostly state-owned enterprises with aging business formats out of sync with current trends and global styles; for example, the street has no giant retailers specializing in electronics, an extremely popular format around the world.

Among other ideas, the Shanghai study suggested that the city should ensure that commercial attractions in the street are distinctive. On the Champs-Elysees, for instance, the visitor can find the world's first Louis Vuitton megastore, the largest Gap store in all of Continental Europe, and Sephora, the world's largest perfumery. …

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