Factory outlet sell-off suggests market oversupply

One of China's major factory outlet centers - run by a leading global operator - has been making considerable losses for the past three years at its site in Shanghai, prompting the owner to seek a buyer for the site.

According to a report in the National Business Daily, the center's Chinese investor, Orient International Enterprise Ltd, is planning to sell its 30 percent stake in FoxTown Property (China) Co Ltd, which owns and manages the 68,000 square meters factory outlet center in suburban Shanghai.

It may be followed by a similar move to sell by the Swiss investor in the business, which owns the remaining 70 percent stake.

The 30 percent stake is being priced at around 53 million yuan ($8.5 million), a huge discount from its market price, estimated by analysts at 200 million yuan.

The report said that the Shanghai site has suffered losses for three consecutive years, and lost 11.8 million yuan in the first nine month of 2011. In 2009 and 2010, its combined losses hit 24 million yuan.

The private firm didn't reveal its 2012 financial statement in a disclosure to the Shanghai United Assets and Equity Exchange.

The massive Shanghai FoxTown site offers more than 90 international fashion brands under one roof.

The potential divestment by FoxTown hasn't surprised retail analysts, however, who suggest that some operators have been slow to fully understand the best formula in China for factory outlet success, and that too many centers are opening, too fast.

Centers are normally huge retail spaces, offering their products at factory prices directly to the customer, typically at a discount of up to 70 percent.

Swiss-owned FoxTown International Holding Ltd is considered one of the best-known names in the business, running numerous international centers.

But Luo Xin, director of China Outlets Committee, a group of experts who analyze retail outlets, said that FoxTown's location - about 40 minutes from the center of Shanghai by car - has contributed to its failure.

"It is too far from the city center, meaning realistically, only well-off families with cars or those who have a lot of leisure time, will even bother to visit," he said.

In addition, he said that a lot of the items for sale at the FoxTown site are actually outdated compared to other major outlets in the city.

Recent figures from Guosen Securities Co Ltd, a Chinese investment bank, show that more than 400 factory outlets opened in China in 2010.

Few outlet centers are doing well. Luo cited Bailian Outlets Plaza in Shanghai and Yansha Outlet Center in Beijing as examples of successful business.

Experts say Shanghai's Bailian Outlets Plaza, which is expecting sales revenue to reach 3 billion yuan in 2012, has done especially well, driven by its success in attracting recognized, quality international brands, which a lot of competitor outlets have failed to do.

"Many of the products sold in Bailian outlets are bought directly, rather than through distribution agencies, so prices are also quite competitive," said Wang Liuhe, secretary-general of Shanghai Merchandise Commercial Profession Trade Association.

However, experts warn that factory outlets could be developing too fast.

Taking Shanghai as an example, four well-known centers have opened in recent times, and more are expected in the pipeline. Some experts fear there is little demand for more.

"In cities like Shanghai, two outlets are enough," said Wang.

"The main function of outlet centers is helping brand owners sell their inventory, as a result, there will not be a lot of items available in the market.

"Too many outlet centers means there will not be enough luxury goods to satisfy consumers' needs."

Contact the writers at gaochangxin@chinadaily.com.cn and tangzhihao@chinadaily.com.cn