Shanghai Disneyland Is Nearly Three Months Old. What Are the People Making a Living Off It Worried About?

We talked to the shopkeepers of Disneytown, the sales clerks at Shanghai Village, and the homestay owners nearby. Here is what they told us.

Zhaohang Village, in the Huanglou community of Chuansha, Shanghai, sits about 30 kilometers from the city center.

Man-made waterways ring it on all four sides. Metro Line 11 runs underneath and drops visitors straight into the middle of it. About 600 meters from the station they reach a bronze Mickey Mouse steering a steamboat, and beyond that the tips of a castle's towers come faintly into view.

Almost none of the visitors here have heard of Zhaohang Village. They all call the place Disney. That is the new name it picked up in 2009, and it is the name it will carry for a long time.

The Shanghai municipal government is the only party that will not call it Disney — and it no longer says Zhaohang Village either. It calls the place the Shanghai International Tourism and Resorts Zone. The name carries a hope: that Disney's pull will not stop at the park gates but reach out several kilometers, even tens of kilometers.

From the earliest planning, the city drew five zones around the core area where the park sits, one in each direction: a cluster of arts and culture academies, a modern entertainment and retail complex, the old town of Hengmian, a wedding-services base, and leisure facilities for corporate headquarters.

Inside the core area it also placed two tourism and shopping projects with no connection to the park at all: the Shendi Eco-Park and Shanghai Village.

In the government's plan, every one of these developments would live off the crowds Shanghai Disneyland pulled in.

It has now been almost three months since the park's grand opening on June 16. Ma Xuejie, deputy director of the Pudong New Area Commerce Commission, has said the park drew about 27,000 visitors a day in June. On August 9, on an analyst call after Disney's earnings release, chairman Bob Iger said: "Since June 16, we have welcomed well over 1 million guests." Disney has yet to say anything optimistic about how the surrounding area is doing.

TalkingData, an independent data platform, reported in its Shanghai Disneyland Visitor Insights Report that visitor numbers climbed steadily from June 16 to July 17. Beyond that, there is almost no independent evidence of how the place is performing.

So how is this much-anticipated park actually doing?

Disneytown, 50 Meters Away

"We expect this Starbucks to become the busiest store in the world."

That was Belinda Wong, CEO of Starbucks China, two months ago, when the company opened a store in Disneytown, a step away from the park.

It is Starbucks' first flagship in Shanghai and its fourth in China. The design alone took a year and a half. To handle the crowds it expected, Starbucks put 110 employees in the 437-square-meter store, a good number of them moving around the floor to help customers order.

Starbucks is one of many brands in Disneytown, a 46,000-square-meter open-air mall whose layout borrows from traditional American small towns and from outlet centers. Nearly 50 brands have moved in, among them Starbucks, Xiao Nan Guo, Chow Tai Fook, Superdry, UGG and Sephora.

The idea of putting a mall like this next to a Disney park goes back to 1975. Four years after the Florida park opened, Disney built a shopping center called the Lake Buena Vista Shopping Village beside the resort's golf course.

In 1984, then-CEO Michael Eisner decided he wanted to keep visitors — and locals too — inside the resort, and the village started getting real attention and money. Over the next 30 years it was expanded and rebuilt again and again until it became Disney Springs, covering 100,000 square meters.

No public figures show how much Disney Springs earns Disney, or how much the brands inside it make. But two things suggest the business pays: in 2001 Disney opened a Downtown Disney beside the Los Angeles park, and with each expansion of Disney Springs, more brands have moved in.

Most of the merchants in Shanghai's Disneytown were counting on the same thing.

Xiao Nan Guo took four storefronts here, one for each of four different brands. The company declined our interview request, citing the approaching earnings season, but according to an earlier report, the entry fee alone cost it nearly 8 million yuan — on top of rent higher than at Raffles City, the upscale mall in downtown Shanghai.

The British streetwear label Superdry also opened its first store in China in Disneytown. Hu Xiangzhou, general manager of Superdry China, told QDaily that what drew them was the volume of foot traffic and how mixed the crowd is, which makes the store a good place to show the brand off.

For other brands, the cost was more than money.

The Hot Toys shop in Disneytown is the first store where the Hong Kong maker of high-end collectible figures sells off the shelf, and for a long while it will be the only one. Li Xue'er, Hot Toys' marketing communications manager, told QDaily the reason is simple: after a day in the park, visitors would rather buy something and take it straight home.

But when we walked through Disneytown on the afternoon of August 14, a summer day, there were only a few small groups on a main street that looked rather empty. The open-front places — Food Republic, Starbucks — had some customers. Chow Tai Fook, Aape, Swatch and Samsonite had hardly any.

Lego was the exception. It had flown in a master builder, who had assembled a monkey twice the height of a man outside the door, and it was drawing a crowd. Staff had set up queue barriers to signal that you would have to wait a moment to get in. Someone close to Lego said that apart from the World of Disney store, which Disney runs itself, Lego had the highest traffic and the highest sales of any merchant in Disneytown.

One wall away, inside the park, the line for Soaring Over the Horizon, the most popular ride, was still more than three hours long.

"All I can say is it's too hot and there aren't many people. Take a walk outside and you can see for yourself how business is." One clerk did not want to talk about sales, and left it at the weather. An Adidas employee a few doors down said: "In the evening the crowds pick up."

The merchants' problem may be bigger than the weather. "You pay 499 yuan for a ticket and then stand in line that long — you're not likely to come back out into Disneytown," said a clerk at the Aikemi Art Gallery, which sells paintings and sits next to the Walt Disney Grand Theatre.

Bob Iger confirmed as much on the analyst call in early August: "Guests going to Shanghai Disneyland are staying in the park two hours longer than we expected." He took that as proof that Chinese visitors like what the park offers. For the shops outside, it means the odds of a park visitor turning into a Disneytown customer are lower still.

"There aren't many people in Disneytown at all, and the ones who come are of three kinds: people who buy a metro ticket just to take photos, people who have checked into a Disney hotel and are having a look around, and people here for The Lion King," the Aikemi clerk said.

The Lion King is a Disney musical, staged every day but Monday at the 1,200-seat Walt Disney Grand Theatre, with a second show added on weekends. Check the official ticketing site and you will find that even on weekdays, anything under 600 yuan sells out early.

Mr. Yang, resting on the edge of a planter, had just come out of The Lion King with his family and was looking for something to eat before heading home. Asked about the shops around him, he said he was not much interested in shopping.

"I'll bet you not one store in this town is making money right now," the Aikemi clerk said.

As the sun dropped and the heat let go, Disneytown turned into something like a public square. After dark, people from nearby brought their families and strolled. The air was warm and children ran around.

The Starbucks doors face all of this. In an email reply to QDaily, Winnie Ma, general manager of the Disneytown store, wrote: "Unlike an ordinary store, this flagship has to serve thousands of guests a day."

But when we walked in around 6:30, only four of the six ordering points at the counter were open. An employee stood to one side telling arrivals which register to go to. Starbucks had put her there to direct the flow of people. There was no flow to direct.

Shanghai Village, 1,500 Meters Away

Lot P3 in the Shanghai International Tourism and Resorts Zone is the parking lot closest to Shanghai Village, and the end point of the driving route the mall recommends. At two in the afternoon on August 13 the lot was empty; the electronic sign at the entrance counted 605 free spaces.

Shanghai Village opened less than four months ago. It is essentially an outlet mall, built jointly by Britain's Value Retail and Shanghai Shendi Group, and it sits inside the core area, about 1,500 meters from the Disney Resort metro station.

You can walk there from the station or take one of the shuttle buses that circle the zone. In practice the buses run empty and the walking route has almost no one on it. Nobody goes from Disney to Shanghai Village.

Shanghai Village may be the best-appointed outlet mall built in China in years. Benches for sitting are everywhere, each with a neat cushion on it. A guard at the entrance will even remind you that the sun is strong and that you can borrow an umbrella at the gate.

The Nike factory store is off in one corner. It was loud with people, on both floors. A customer at the register was counting the shoes he had bought; seven or eight big paper bags, all his, were stacked by the door.

This was the busiest spot in the whole mall. Apart from Coach, no other brand came close. Most stores stood empty, and one or two groups of customers was enough to make one look lively.

Even so, Nike is not happy. "Business here is far worse than at our store by Pudong Airport," one clerk said. He meant the store in Florentia Village, an outlet mall that opened in January 2015, two metro stops from the airport.

Some clerks blame Florentia Village for the quiet. "Our marketing people haven't even started promoting us yet, and the metro is full of Florentia Village ads," said a clerk at Armani Outlets.

They may be right. The outlet format sells itself on gathering a lot of brands and discounting them, which means the sites tend to be far out of town — so advertising and marketing matter more for a place like Shanghai Village than for most malls.

In theory this should not have been a worry. When Value Retail signed with Shendi in 2014, chairman Scott Malkin said that with the Shanghai Disney Resort next door and the easy, varied transport links serving it, the Shanghai Village project would become the most important tourism outlet mall in Asia.

Value Retail also runs La Vallée Village outside Paris, less than a 10-minute drive from Disneyland Paris. That village takes in more than 14 million visitors a year, so the company ought to know how to run an outlet mall beside a Disney park.

In one respect, Shanghai Village has exactly the same problem as Disneytown.

"A Disney ticket does cost 499 yuan. If it were me, I'd want to stay inside longer too," said a staffer at Zanadu, an online luxury travel agency. Zanadu has a partnership with Shanghai Village, which is why it opened its first physical store here, showing travel films shot in virtual reality. Just past three in the afternoon, the queue numbers for the VR experience had only reached the sixties. The staffer blamed the location.

TalkingData's numbers say the same thing. Its traffic concentration index for July 2016 — the foot traffic of a given area divided by the total foot traffic over the same period — shows the park itself drawing four times the traffic of the shopping and dining area.

If the park really takes 27,000 people a day, that leaves Shanghai Village with 6,750 a day, and fewer than 2.5 million a year. That is about one-sixth of what La Vallée Village gets.

A tourism executive who asked not to be named said travel agencies may start bundling the two: Disneyland as an optional paid add-on, with anyone who does not want to pay dropped at Shanghai Village instead.

QDaily sent Shanghai Village an interview request and had received no reply by the time of publication.

Oubo Shengbaoyuan, 5,000 Meters Out — Where Is That?

Lanxue Road is a narrow two-lane street lined with small shops and snack stalls. There is even a garment factory on it, called Yidong.

Directly across from the factory is a gated compound, Oubo Shengbaoyuan, with more than 100 villas inside. It was finished in 2005, and in 2016, because it is less than five kilometers from the park, it finally came back to life.

Mars and three friends arrived in May. He took over No. 89, a detached villa, and started renovating. All told it cost him more than 1.2 million yuan.

"I worked at a hotel next to the World Expo back then, and it was full every single day. Disney should pull about the same crowds as the Expo, and it's a long-term thing — not like the Expo, which was over in five months," Mars said of why he started a homestay here. "Even if the numbers are low, it's enough to feed us."

Mars studied exhibition design at university and has done design work since. "Design is a pretty broad idea anyway," he said. He put those skills into the renovation: "Soft furnishings, matching colors, that sort of thing — I can handle it."

Before he took the villa at Oubo Shengbaoyuan, Mars and his friends had their eye on a house on Huaxia East Road. It was nearly 10 kilometers from the resort zone and the mobile signal in the compound was poor, but he was ready to sign anyway.

Then, the day before he was due to, someone took it at 23,000 yuan a month. "The guy does renovations — he's decent at it, used to be a foreman for plumbing and wiring crews," Mars said.

By Kae's reckoning, landlords like Mars mostly turned up near the resort in March and April. Some had been watching the area for a long time, and only signed then because a rented house sitting empty is an enormous cost to carry.

Kae is Mars's neighbor. She works for an online furniture brand called Jiangwu, which took No. 85 and turned it into a homestay.

Jiangwu went into homestays partly out of personal interest — its founder, Cai Minghang, was Airbnb's first engineer from China. It also wanted a physical space to display the furniture it sells. Hiring a designer to convert a villa and furnishing it with its own products was the obvious way to get both.

"It's a company product, so it would be nice if it also made money. Disney was opening anyway, so we came here to look for a house," Kae said.

She started hunting around Disney at the end of last September and spent a month at it. Because she was early, and because the villa was still a bare shell, she got it for under 10,000 yuan a month. Then came the designer and the builders. The renovation alone cost more than 3 million yuan, against a house worth only a little over 10 million.

"The structural work eats money — central air conditioning and so on — and we changed the layout too; the yard wasn't level to begin with," Kae said.

Individuals like Mars and companies like Jiangwu are hardly alone in wanting to make money off the park. Mars told QDaily that there are now more than 1,600 homestays around Disney, and the number keeps climbing.

Not all of them are getting what they hoped for. "Business here — how do I put it — really isn't good," Kae said, and added up the costs: more than 2,000 yuan a month in electricity, toiletries bought from Muji, the cleaner's wages, the rent on the house, the salaries of the staff who run it. Occupancy runs at about a third of the month.

"We're not making a profit. Earning back the renovation money is basically out of the question."

Kae has a list of reasons. The first is positioning: Jiangwu aimed high-end, every room is large, and the villa ended up with only three of them, instead of the seven or eight Mars carved out of his.

The second is that Jiangwu would rather rent the whole villa at once. A single family plainly does not need a house that size and will not pay more than a thousand yuan a night for it. Groups traveling together are a better fit — but there are far fewer of them.

Part of the blame goes to the park. "We assumed Disney would be so busy its hotels would be overbooked, and the overflow would come to us. But Disney isn't that busy. The hotels are still easy to book — you can get a room in the one inside with two or three days' notice," Kae said.

Huang Zijie, marketing director of Keys, agrees. "Disney is a new market, and it's turned out close to what we forecast. After the short burst of hype during the soft opening, it hasn't been able to keep breaking records."

Keys is a service company for homestays: routine cleaning and upkeep, design and renovation advice for hosts, private chefs and transport for guests. It has full-management contracts with more than 100 homestays around Disney, and some hotels and homestays also list rooms on its booking platform.

"Right now we can hold occupancy at 60 to 70 percent — and that's near the end of the high season," Huang said. That figure covers the 100 homestays under contract and the hotels Keys only takes bookings for, about 500 rooms a night in total.

Against the industry average that might pass. But this is Disney, a place that in theory draws enormous crowds and should have rooms in short supply — though in fact everyone's expectations may simply have been too high.

"Around this park, 10,000 rooms a night is the absolute ceiling, and that's already very, very large," Huang said. "And that 10,000 covers every price level. For a tourist destination it's a small number — some big ones have 30,000 to 50,000 rooms."

Mars tells a different story. "There's a hotel on Chuanzhou Highway. The building is quite good, but it has never opened. If it did, there'd be no shortage of rooms at all." A hotel that stays shut may mean that around Disney, supply has already outrun demand.

So the question for operators like Mars and Kae is how to stand out when the crowds are thin and the competition is not.

Mars's answer: "Traffic is a bit below what we imagined, so we make up for it with service."

In his villa, the ground-floor kitchen has become his own bedroom. He lives there and answers guests' requests around the clock — putting together tips for the park, and driving out himself at midnight to fetch guests who come back from Disney and cannot get a taxi.

Then there is promotion. "Mostly we work with the hotel and homestay platforms, try to get as many good reviews as we can, push our ranking up, and get named a preferred host." He stresses that "none of that costs money — we earn it ourselves, off guests' reviews." When the off-season comes, he is thinking of paying a few big WeChat accounts to write about the place.

It seems to be working. In the compound we ran into the woman who cleans Mars's rooms. "Full every single day," she said, her voice rising without her meaning it to.

It is still a hard business. "You may see a batch of homestay brands emerge here the way they did in Moganshan, and you may see a batch wiped out — there just aren't enough guests to go around," Huang said.

Mars puts it more bluntly: "After the shakeout, maybe 30 percent of us are left."

The summer holiday is over, which means the slow season is coming, and Mars is already worried. What he may not know is that on August 5 the Chuansha town government launched a project of its own, "Lianmin Village Signature Homestays." Construction has started. The first 50 houses open around July next year.