Los Angeles Times wrote:
Illusions on Sale in Shanghai
Just like the city, ‘ghost malls’ aren’t what they appear to be. High-end stores attract few shoppers, but image trumps commerce.
By Don Lee
Times Staff Writer

July 13, 2006

SHANGHAI — Amid the towering glass-and-steel splendor of the Plaza 66 mall — packed with boutiques offering Dior, Prada, Cartier and other luxury brands — shop clerk Xu Junyuan idly scratched his bald head as a lone shopper browsed the deserted aisles.

“I’m just bored,” said Xu, who works at the jeans boutique Diesel.

At Fendi, black-suited clerks yawned as they propped themselves against counters. At the palatial Louis Vuitton shop next door, a 7-foot-tall plasma television played to no one.

In this populous city of fanatical shoppers, Plaza 66 is what some locals call a gui gouwu zhongxin — a ghost mall.

The prices are so high that no one buys much. But then, no one really cares.

Just as Stalin erected Potemkin villages to display the glories of communism to outsiders, Shanghai is creating its own illusion of prosperity out of the world’s most luxurious brands.

Offering cut-rate rents to top-tier fashion houses, this city of about 18 million is determined to make itself look like a world capital of high fashion.

And the Burberrys, Hermes and Chanels are all too happy to join in the charade.

“Most leading luxury brands will need to have a flagship store in Shanghai if only to put Shanghai along with London, Paris, Milan on their bags,” said Paul French, founder and China chief of Access Asia, a marketing research firm in Shanghai.

The illusion is so thin that some stores don’t bother to carry much stock. Others may have lots of clothes on the racks, but they carry just one size: medium, which is too big for most Shanghai women.

Some shops “don’t ring up a single sale for days,” Xu said.

Before World War II and the communist takeover in 1949, Shanghai was often called the Paris of the East — a fashionable cosmopolitan city, the place to be.

At its height in the 1930s, the city was an international trading center and money flowed in from everywhere. Tens of thousands of British, French, Germans, Russians and Americans had settled in the city — a legacy of the first Opium War, when Shanghai was carved up into concessions. The foreigners brought to this onetime farming village elegant Art Deco architecture, haute couture, posh restaurants, dance clubs, brothels, everything to satisfy the whims of the rich.

The party ended in 1937 with the Japanese invasion. After World War II, the city endured battles between the nationalist army and communist forces. When Mao Tse-tung emerged victorious in 1949, Shanghai, along with the rest of China, shut itself off from the rest of the world.

In the last decade, city leaders have sought to regenerate the lost hype in part to draw foreign investment. And they’ve been largely successful, capturing worldwide attention from the media and others who gush about Shanghai as Asia’s most vibrant city, overflowing with wealth and grandeur. Gleaming malls like Plaza 66 have risen to replace decrepit neighborhoods.

But Shanghai isn’t what it appears to be.

The Shanghai Stock Exchange boasts Asia’s largest trading floor inside a 27-story glass building modeled on the Arc de Triomphe in Paris. But the floor stays largely empty because trading is electronic, and the stock exchange remains a joke among serious traders for its lack of transparency and inadequate regulations.

At a cost of $1.2 billion, Shanghai built the world’s fastest train in 2003, which at a regular speed of 267 mph beat out Japan’s bullet trains. But residents have complained that the magnetic-levitation train to Shanghai’s largest airport is a white elephant because it doesn’t run during hours when many flights arrive or depart. Although the train’s hours were recently extended, passengers still have to go to the outskirts of the city to catch the train.

Shanghai has been host to an international fashion model contest and a film festival, but they draw few celebrities from outside China.

Shanghai’s upscale malls are another daily reminder that there is less to the city than meets the eye. “Shanghai is a dreadful retail market,” French of Access Asia said.

Many of the well-to-do have their assets locked up in property, he said. Others are too busy squirreling away money for healthcare, retirement and their children’s education — all signs of a metropolis and a population that are maturing.

Government officials who worked with Hong Kong developer Hang Lung Properties to build the five-story Plaza 66 know that the mall is hardly bustling with people.

“If you walk into Plaza 66, you will find it cold and cheerless. There’s hardly anybody,” said Zhang Zuofeng, an economist with the planning department at Shanghai’s Jing An district government.

But he said that Plaza 66’s office tower was doing well and that the complex generated $80 million in taxes last year.

Terry Ng, Hang Lung’s executive director, acknowledged that traffic wasn’t heavy.

“Expensive items, man,” he said, insisting that the mall is profitable for the tenants and his company.

Jiu Guang City Plaza, another Nanjing Road shopping center near the 1,800-year-old Jing An Temple, was so keen on attracting Burberry, the upscale British apparel maker, that it offered the first year rent-free, brokers said.

Plaza 66 and other malls like it in Shanghai “are solely a window for these brands,” said Chen Jun, manager of commercial real estate at Shanghai Hanyu Property Agency.

“For Louis Vuitton, the district and municipal government singled out this brand for Plaza 66,” Chen said. So although it has the best location on the first floor, the French company enjoys one of the lowest rental rates per square foot. Other tenants pay a percentage of their sales.

Representatives of Burberry, Louis Vuitton and other premium labels generally declined to talk about individual store sales or lease arrangements. But, said Grace Chao, a spokeswoman for Chanel in Shanghai, “Not all brands are paying rent.”

Chao wouldn’t comment on the merchandise at the Shanghai store, saying that “each market has its own strategy in terms of buying.”

The real Chinese high-end spending is taking place in Hong Kong and in smaller mainland cities such as Dalian and Shenyang in the north.

Managers at five-star hotels near Plaza 66 talk in hush-hush tones about the mall’s stores, trading stories about high-end customers being courted privately, flown for shopping weekends in Hong Kong, where there are better selections, newer styles and bigger savings. Luxury goods there cost at least 10% to 20% less because Hong Kong doesn’t have the duties, taxes and special surcharges of the mainland.

Among those who spend their cash at Plaza 66 are so-called rich wives’ clubs, groups of women who come during weekends from Wenzhou and other entrepreneurial hot spots in Zhejiang or Nanjing provinces. Another group of luxury customers: local Communist Party cadres who buy items such as Mont Blanc pens as gifts.

There are plenty of local nouveaux riches who aren’t bashful about conspicuous spending. But most know better than to burn their money in Shanghai.

Tiffany Hua, a 25-year-old yoga instructor and daughter of a Shanghai restaurant magnate, goes on shopping junkets to Hong Kong three or four times a year. She visits malls like Plaza 66 and Jiu Guang more often than that, but mainly it’s to browse and scribble model numbers for her next trip.

Hua recently was sitting at a coffee shop on Nanjing Road, a stone’s throw from the gold- and silver-lettered malls and boutiques.

She was wearing 1960s-styled Prada sunglasses that she picked up in Tokyo (they don’t carry them in Shanghai, she said) and a silver Cartier watch, which she bought in Hong Kong for $2,300 — about $900 less than the price offered at Plaza 66.

“In Shanghai, it’s window-shopping,” she said.

On a recent weekday mid-afternoon, the mall was so quiet that the clicking of shoppers’ heels could be heard on the synthetic marble floor. On the shopping center’s third and fourth floors, one boutique clerk was polishing her nails and others were chatting or leaning on counters.

Phoebe Lao, a 24-year-old clothes designer, was one of the few shoppers on the third floor. She said she didn’t buy much here because she preferred clothes from cheaper labels.

But she is a regular at Plaza 66. She likes the mall, she said, because it’s one of the few places in Shanghai that isn’t crowded.