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Alex Jaques is a real estate investment consultant. Basically, he helps the people who own malls make more money out of them, and he's been doing it across three continents for the past 25 years (the last six in China). He knows a thing or two about how real estate works, from how much money brands need to be making per square foot in order to survive to what mix of brands a mall needs in order to attract the right customers. One of the most interesting parts of his job, from an F&B and retail voyeur perspective, is his process for picking brands that he believes will work in China but are not already here, or have just arrived.

I spent two hours with Jaques the other afternoon talking retail real estate, capital flows, how shopping malls use extremely detailed data on their customers to run their businesses, and what brands his complicated retail index spits out for success in China. I accused him of making the world a more homogenous place. He countered, and I'm summarizing here (he is an erudite and extremely fast talker), that he is a retail Darwinist and that fundamentally, he believes retail can be a civilizing force. He pointed to McDonald's recent switch to free-range eggs in the UK as an example that consumerism is not the problem; consumers, in fact, have the power and can affect the changes they want to see.

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On How Retail Development Works In China

The market here is not typically demand-led. It is top down planning as opposed to bottom up. The first thing you do if you are Taubman, or Westfield or Lend Lease (all major foreign retail property developers) is ask: what underpins my rent? Retail sales. What underpins retail sales? The number of shoppers and shoppers' propensity and the types of consumers. That doesn't happen here.

In China, it's "I want access to this deal", the government is auctioning off a patch of land, Central Planning or local planning says that they want this type of property, this much retail, so therefore I build that much retail. So it's not demand-led.

On The Data-Led Nature Of Shopping Malls, And The Lack Of It In China

Assessing consumer demand is not that good in China and getting access to data is very difficult. In America, I can say to a woman,

"Hello Madam, how are you?"

"I'm fine"

"How long did you spend in the shopping centre today?"

She goes, "here's my parking ticket, what time is it now? I've been here an hour, and I'm leaving."

"How much did you spend?"

"Well, here's my receipt, here's what I spent."

"By the way, how old are you and where do you live?"

So four questions, and I have an idea of the consumer.

But in China you can't do that. There are no data-led metrics. You're not following human behaviors, you're leading them.

If I said to a Chinese consumer ten years ago, a junior office worker, 24 years old, "What do you want from your coffee shop?" She would say, "What's coffee? I'm Chinese, I just drink tea." If was following consumer data, that's their business strategy down the drain.

The motivations for shopping are different as well. We did a consumer study in China, interviewing young women in line at the cinema. Seven out of ten of them didn't know what they were going to watch, and they were in line to buy tickets. They just wanted to get out of the house, have Mom stop nagging them about a husband, about a raise. People have very different motivations here.

On the Three Types of Shopping Malls In China

Yueda 889

1. Foreign private equity. Blackstone (, ), J.P. Morgan (Plaza 65 at the bottom of Madang Lu), Morgan Stanley (Life Hub @ Jinqiao), or the new generation like ARA or Gaw Capital. They have one model. They have done well because properties here are so badly managed. They go in, improve a range of efficiencies, and sell the mall.

2. State-owned enterprises. These are Vanke or Wanda. They got into commercial property because they've been told by government that they have to, and they've done a relatively decent job, relative to the market, of creating malls that are less shit than everyone else. But that's a low bar.

Hubin Dao

3. The Hong Kong developers, with guanxi going back decades, many decades, a hundred years. These are Shui On (, , ), Sun Hung Kai (, Shanghai Arch), Hang Long (, ). They create pretty good shopping centers for China. They are long-term holders of property; they are essentially replicating a Hong Kong model. For them, the biggest issue is that this isn't Hong Kong. You haven't got population densities, Chinese consumers are far less sophisticated, the things that drive customers to go out are completely different to the mainland Chinese.

On What Makes A Successful Retailer

You define success by retail sales in excess of 10,000 USD per square meter. This is true for all brands, regardless of their industry. They pretty much operate the same way: they have a forensic knowledge of their consumers. It's absolutely key to who they are, their buying departments, merchandising products, their branding strategy, their marketing and communication plan, their entire business planning. They are formidable operating businesses like the Inditex Group (, , ). They fundamentally know their consumers. Gap, Tesco, Wal-Mart — let's not talk about China problems here — but globally Topshop, River Island. They can tell you everything about their consumer: their age, their gender, what they do on the weekend, where they go on holiday, what music they listen to, where else they shop.

On What Makes A Successful Mall, And Why Shanghai Doesn't Have Them

Look at Mall of the America, the biggest mall in the United States. Their best brands — Tiffany, the — will be doing 25,000 USD per square meter, but even their worst brands, a discount store, for example, will be doing 9,000 USD per square meter. So from your best to your worst, it's not a huge gap. But if you look at Shanghai, your best retailers might be doing 20,000 USD per square meter, but there are only two or three of these in the entire mall. Then you have a few successful sports brands, and then at the bottom, you've got midmarket American fashion retailers, doing 3,000 USD per square meter. So the gap is completely off.

How Do Landlords Rent Space?

In a mature market, where the landlord would have that forensic knowledge of the consumer, he would know exactly the rent a retailer can afford to pay, and he would make his mix of tenants, depending on what type of shopping center he wanted. Some brands are different. McDonalds, for instance, they say "This is what we pay, it's this % of our turnover, do you want it or not?" If you are , though, the process is different. You don't know the forensic level of data, so you go, "What retailers need space?" And it's restaurants. So, IAPM is essentially the world's biggest food court. But it's a beautifully designed shopping centre.

IAPM's elevator

How Do The Luxury Brands Work?

They pay a combination of turnover rent (a % of sales) and base rent (a fixed rate). Now bear in mind, there are other considerations for retailers: Do we want a flagship? Is this store a branding exercise? Are we trying to make a statement to our customers? But in general, ground floor retailers pay up to 70 or 80rmb per square m per day. The exact numbers are a very closely guarded secret but I'm telling you now, the top luxury brands? They only pay a percentage of their sales and the landlords themselves will pay to decorate their stores. You know who they are.

Plaza 66

Think about it. If I'm in the UK and I want to find a Chanel shop, how many are there? A dozen in the whole country. In Australia, maybe five. Here, in Shanghai, there are 14 Chanel shops. And if you are Chanel, why wouldn't you do it? The developers are basically paying them to open shops.

On Why No One Buys Luxury Products In China

If you suspect there's never anyone in the luxury stores, you're right. One newly rich farmer buying 40 watches at the Gucci is not a business plan.

The biggest issue recently is that familiarity breeds contempt. Number two, core shoppers would much rather go to Hong Kong or London because it's cheaper. And you're in London, which is an amazing city. And you're Chinese. And you're cashed up. And you'd much rather be eating half a dozen oysters in Scott's, a famous seafood restaurant in Mayfair, than gulping down a warm martini at Morton's in IAPM. That's an existential issue.

On Opportunity In Re-Branding Chinese Restaurants

There's so much opportunity in China. There's a noodle brand in Chongqing I went to recently. If they put it together with the hygiene and the history and service, they'd make a mint. I've been to dozens of restaurants like that. I've gone, bloody hell, this is incredible, if we can just stop with the coughing and spitting, spend a million dollars on the shop fit-out, create a narrative, and communicate to customers this guy has the best noodles in Chongqing and he got his recipe from his grandmother... it's a no-brainer. It'd be the next Din Tai Fung.

What Foreign Brands Might Work In China

Nando's

Nando's. If London's Borough Market could brand itself — the food as gifts category is huge. Bill Granger's casual F&B, Australian/British, like an uber-posh Wagas, Japan's Spring Valley Brewery, Mario Batali's Eataly: he and his cohorts have looked at this market, I've spoken to him, that would go great here. The issue is importing food, but if you have guanxi, and actually focus a majority of the store on his in-store bakery and restaurant... BrewDog could do something like Goose Island but 20 times better, Whitbread (they own Costa Coffee, Beefeater Grill, and half a dozen other brands), (already here), Dean and DeLuca, owned by Singaporeans.

More F&B Brands

Commune Social

In and Out Burger, Bubba Gump Shrimp Company in Hong Kong, they are trading very well, (already here), Diageo, like Whitbread, have a huge brand stable, they're already committed to China — it's their number one market in the world — Wolfgang Puck (not doing very well), Gaucho Steaks — a great product, Argentinean steaks, the shop fit-outs are absolutely sublime. Jason Atherton is looking at creating a social brand to bring to the masses, he's here, committed to Asia, he's got eight restaurants in Asia. Hawksmoor Steakhouse — can you imagine? These are the world's best steaks, outdoor grass-fed, it's almost a Japanese-level brand. Shake Shack. Gordon Ramsay. Byron Burger, the best in the world. There are maybe a third of the brands in Hong Kong that could come here but for whatever reason they don't.

Shake Shack on New York's Madison Square

Clothing Brands And Department Stores

There's plenty. Topshop. UK department store Liberty — now customers say they want this but there's a whole issue around department stores here. The best department stores in the world are Korean and Japanese, they don't work here, there's got to be a reason for that, so I think Liberty has to be a one-off destination, done very very very carefully. , already here and doing incredibly well. All Saints. Beanpole, which is at Grand Gateway and doing very well — they are the number one fashion retailer in Korea. Imagine a Korean Banana Republic. Blue Avenue, where women can buy something that's nice for themselves but also inexpensive, a great way to make a woman feel good. J. Crew.

On Getting Rich In China And The China Paradigm

On the one hand, if you want to chase it, the pot o' gold does exist for brands in mainland China. But if you don't and can't get your head around the commitment that's going to require, don't bother applying. Be defeated in China for the right reasons: lack of guanxi, corrupt**n, but not for the wrong reasons: I was unprepared and I have a shit business model, I don't listen to specialist advice and I don't send out my best team to get things done.