BEIJING — Brands should not rely solely on joint-venture partners in selecting retail locations in China or bank on the notion that opening in prime locations will lead to greater sales, according to a report by SmithStreet Solutions, a Shanghai-based consultancy.
The report pinpoints how brands must be increasingly strategic when choosing where to open stores, particularly as landlords of shopping centers employ unfair business tactics, such as unexpectedly increasing rent or choosing tenants based on an assessment of where the brands have existing retail space. For example, if a brand has a flagship in a prime retail space in Shanghai or Beijing, it is more likely to have more bargaining power when moving to a smaller city. Yet if the brand opts for a lesser-known development, it may be harder to snag a premium space elsewhere in the country, according to SmithStreet.
According to the study, brands have been asked to pay significantly more money for retail space if sales increase, which ultimately impacts their bottom line in China. Additionally, brands could be shut out of a retail development based on the reputation of malls where they have existing stores. This risk is greater if a brand opts for a new development in a second- or third-tier city that is not well-known among shopping mall operators elsewhere.
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