Why So Many Luxury Brands Have Crowded Beneath a Giant Panda's Backside in Chengdu

For brands, Chengdu may be a better bet than Shanghai or Beijing, where land is scarce and costs are high.

The trendiest date spot in Chengdu these days, we hear, is "under the giant panda's backside."

It is not the entrance to a zoo. The "backside" belongs to one of the city's top shopping malls, Chengdu International Finance Square (IFS). Since the 210,000-square-meter mall opened in January 2014, it has outshone even Chunxi Road, the city's landmark shopping street. Big-name flagships stand shoulder to shoulder on its first and second floors, many of them billed as "first in central and western China" or "southwest flagship." There is Balenciaga's first store in West China, Burberry's southwest flagship, Chanel's first store in central and western China, the largest Dior & Dior Homme flagship in China, Moncler's first store in West China, Paul Smith's first store in central and western China, Salvatore Ferragamo's largest flagship in Asia, Valentino's first store in central and western China and, most prominent of all, the mall's only three-story store: Louis Vuitton's largest flagship in southwest China.

The mall even persuaded Chanel, famously exacting about locations and partners, to open its first store in central and western China here. Word that Chanel would come to Chengdu had circulated 10 years earlier, but nothing came of it. So when Chengdu IFS announced a Chanel flagship, many people suspected it would turn out to be just another beauty counter.

These flagships line up along Hongxing Road. Above them, a plump black-and-white panda hauls itself up the side of the building, a figure that could stand for the state of commercial real estate in Chengdu.

"Many customers tell us, 'Finally, Chengdu has a place like this,'" Hou Xun, general manager (operations) of Wharf (China) Estates Limited, told QDaily. IFS is a brand of Hong Kong's Wharf Group. After winning this prime plot in Chengdu in 2007, Wharf hoped to turn Hongxing Road into another Canton Road, the Hong Kong street that is home to Harbour City, the developer's most successful and best-known commercial property. Thanks to its range of brands, Harbour City is now where mainland tourists go on shopping sprees in Hong Kong, and queues of shoppers waiting to get in are a common sight outside the luxury stores along Canton Road.

Now Wharf wants to repeat Harbour City's success, under the IFS name, in the core business districts of more mainland cities. Besides Chengdu, it has four other sites, in Changsha, Chongqing, Wuxi and Suzhou. Chengdu is the ambitious Hong Kong developer's first stop in inland China. Wharf spent more than 16 billion yuan to build this commercial complex of more than 760,000 square meters. The mall alone has brought nearly 300 brands to Chengdu, more than 90 of them new to the city or to the southwest.

Chanel's flagship store inside Chengdu IFS

Here, a middle-class weekend in Chengdu looks no different from one in Shanghai, 2,000 kilometers away, or even in Hong Kong. You can have dim sum with girlfriends at Maxim's Jade Garden, then browse Lane Crawford on the third and fourth floors. At noon you can grab a bowl of ramen at Ippudo; in the afternoon you can read at the Page One bookstore upstairs or catch an IMAX blockbuster at UA Cinemas. Before heading home, you can do the week's shopping at Great Food Hall, a Hong Kong gourmet supermarket on the second basement level that sells imported foods and fresh produce. On weekday evenings, Stream, a Taipei cocktail bar built around nightclub culture, is a good place for office workers to let off steam. It even has its own exit: the mall opens a special passage for restaurants and cinemas that close late, and keeps its main entrance on Hongxing Road open until the last customer has left.

Standing amid the bustle of the Chunxi Road and Yanshikou shopping districts today, it is hard to imagine that before 2010 Chengdu had no high-end shopping mall at all. It had only old-style department stores: Wangfujing Department Store, Parkson, Renhe Spring, Meimei Licheng and the like, plus a few long-established department stores run by Japanese companies such as Isetan and Ito-Yokado.

A street scene on Chunxi Road, Chengdu's busiest thoroughfare

But brands had long been eager to enter western China's most developed hub city, and these stores were their only option. Estée Lauder, Louis Vuitton and even Hermès all opened there. In 2011, Estée Lauder's counter at Chengdu's Wangfujing Department Store set a record as its top-selling counter worldwide, and Hermès moved into Meimei Licheng as early as 2007. Today these old department stores look dated, and in size and shopping environment they cannot compete with full-scale shopping malls.

Only after 2010 did international mall brands such as Yanlord Landmark and Raffles City arrive in Chengdu. In 2014, IFS and Sino-Ocean Taikoo Li Chengdu, separated only by Zhongshamao Street, opened one after the other and pushed the upgrading of Chengdu's commercial real estate to a new peak.

People outside Chengdu may find it hard to sense this quiet but frenzied wave of consumer upgrading. A block from IFS, you can still get lunch for under 10 yuan. According to JLL's latest China 30-City Retail Report, Chengdu's per capita disposable income in 2013 was nearly 30,000 yuan, up 10.2% from the year before and 22nd among China's 30 major cities. Yet the same year, Chengdu already had 1.8 square meters of shopping mall space per person, third in the country after Shenyang and Wuhan.

Andrew Keith, president of Lane Crawford, recently explained in an interview with BoF why the company chose Chengdu IFS for its fourth store in China: "First, western China is developing very fast, with GDP growing faster than in the rest of China. Chengdu's GDP growth is currently holding at 12%, while the rest of China is at only 7.2%. Chengdu has many entrepreneurs, there are 250 million people in and around Chengdu, and crucially, so many people from the western provinces keep coming to Chengdu. That is where Chengdu's huge business opportunity lies. From our perspective, Beijing, Shanghai and Chengdu basically form a big triangle covering most of China. With these three cities as hubs, we can serve our entire customer base and win more market opportunities."

Lane Crawford inside Chengdu IFS

He speaks for many brand operators: Chengdu is simply too important to miss. And it now offers the best units in the best shopping districts, which can no longer be found in first-tier cities such as Beijing and Shanghai. In 2013 alone, nearly 1.2 million square meters of quality retail space came onto the Chengdu market.

Hou Xun says Wharf's decision to open its first IFS in Chengdu was also, in a sense, "passive." She remembers how, seven years ago, Wharf fought for this prime plot in a frenzied land grab. "At the time, if you didn't take a good location, someone else would. In second-tier cities, the core locations were snapped up long ago," she said. Across the narrow Shamao Street from IFS stands Sino-Ocean Taikoo Li Chengdu, which opened only a few months ago. Although much of it is still a construction site, the row of Gucci and Stella McCartney flagships along the street, as well as the Maison Hermès, have been open for some time. The recent openings of Starbucks and the Muji global flagship store have also drawn plenty of attention to Taikoo Li.

To set itself apart from its many competitors as uniquely high-end, Chengdu IFS has taken great pains over design, leasing and operations, and uses many gimmicks that would look advanced even in Beijing or Shanghai. It introduced the idea of "three ground floors." A ramp built on the outside of the mall lets taxis drive straight up to the "second ground floor" on level three, where VIP members can also leave their cars with valet parking. The third ground floor, on level seven, is a sculpture courtyard filled with works by contemporary artists, where some Western restaurants have already opened. Inside, the mall also has luxurious VIP rooms and lounges equipped with computers.

The third-floor entrance and the seventh-floor sculpture courtyard at Chengdu IFS

Speaking of VIPs: open for nearly a year, the mall already has more than 20,000 members. To qualify, a shopper must spend a total of 60,000 yuan in a single day. Most members are women aged 25 to 35, largely from Chengdu and nearby cities. With them in mind, Wang Yunlei, deputy general manager of promotions and marketing at Chengdu IFS, and her team stage events almost every month. These range from a fashion publication produced with Hearst's Yizhou and Chengdu's first Fashion's Night Out (FNO), the all-night shopping party run with VOGUE, to a Christmas party for VIP members in a hotel ballroom. All are aimed at the young people she describes as "fashionable and fun-loving."

"When we held FNO, the people from VOGUE said, 'We never expected Chengdu to be so fashionable.' Our members love events like this. They show up dressed to the nines and have a great time. We tell them about these events on WeChat, where every member has a personal customer-service agent who can help reserve tables at popular restaurants and so on," Wang Yunlei told QDaily. Recently, IFS launched another promotion, "Hunks Keep You Warm This Winter": whenever a female member arrives at any store in the mall, five handsome men hand her a hot drink and a rose.

Every one of these events has to be negotiated with the brand stores in the mall, so IFS's operations team is in constant contact with brand managers. The point of all this effort is to show brands that IFS is not just a landlord who opens the doors and collects the rent.

"In fact, just as Chengdu IFS began signing tenants, the 'Eight Rules' were issued, and luxury sales in Chengdu and across China slumped. Brands' sales in China slowed in 2013," Ma Weiye, head of research for West China at JLL, told QDaily. "But Chengdu is still very short of shopping malls like IFS. By comparison, department stores such as Yanlord Landmark and Meimei Licheng were hit harder." So far, Ma said, IFS and Taikoo Li, a street apart, have not fallen into cutthroat competition. Instead, their back-to-back openings have dealt a heavy blow to Chengdu's local department stores.

In recent meetings with brand executives, Hou Xun has also noticed them growing cautious about the store-opening spree they pursued so eagerly in China over the past five years. "Many brands say that in future they may consider opening only one store per city to control risk, and they prefer stronger partners," she said. A typical example: after Hermès opened its new Maison Hermès at Sino-Ocean Taikoo Li Chengdu, it closed its old store at Meimei Licheng.

The Maison Hermès at Sino-Ocean Taikoo Li Chengdu

To keep these big names and attract more brands, IFS offers quite attractive leasing terms. A brand that wants to get into Harbour City in Hong Kong today may have to wait in line for years, and may not like the unit it finally gets. At Chengdu IFS, by contrast, the terms are generous and brands can move in at any time. That is why A&F chose to open a flagship at IFS.

According to industry insiders, some malls charge brands a base rent plus a share of sales, usually as much as 10%, but Chengdu IFS has offered many brands 8% or less. Generous fit-out subsidies also explain why the brand flagships look so splendid. IFS is currently 96% leased. Bringing in a huge real-ice skating rink and a bowling alley has been another smart way for Chengdu IFS to fill its leasable space, and it draws families with children too.

The real-ice rink at IFS draws family shoppers and helps fill leasable space

This may also explain why the mall's most expensive rents are not on the first floor but on the third. "IFS is the only mall in all of Chengdu that could persuade big brands to open on the third floor and make the third floor its most expensive," Ma Weiye said.

You may wonder what kind of "big brand" would agree to open on a third floor. Yet the highest-rent units at Chengdu IFS are indeed on the third floor, at 1,800 yuan per square meter per month. That is thanks, of course, to the ramp from the street to the third floor and the "second ground floor" gimmick. The third and fourth floors are set aside for top jewelry, watch and accessory brands such as Van Cleef & Arpels and Rolex, and Lane Crawford is there too.

A few days ago, right beneath the panda's backside, a glittering "snake" went up, shining in the night above a Bulgari logo. Perhaps taking a cue from Harbour City's giant rubber duck, Chengdu IFS has spent the past year using eye-catching installations to pull in crowds. From the panda to Doraemon, the idea is for cute cartoon characters to bring life to a mall that can feel a little aloof. Taikoo Li, newly opened next door, chose Ali the fox.

Hou Xun says the mall felt most like Harbour City on the day of the Doraemon exhibition, when foot traffic hit a record 290,000. "Everyone on the escalators was in a hurry, walking fast, and there were queues everywhere," she recalled. Her first reaction was to tell staff to turn the air conditioning down as low as it would go.

More often, though, Chengdu IFS has a character of its own that sets it apart from Harbour City. Given Sichuan's rich food culture, it will bring in more restaurant brands. And rather than leaning only on dazzling big names, it now focuses on the "middle class" as its target customers, in place of the "rich second generation" and the "tuhao," China's flashy nouveau riche.

Right between IFS and Sino-Ocean Taikoo Li, a combined mall and office complex called Jingronghui has already gone up. According to Ma Weiye, affordable-luxury brands priced around 1,000 yuan, which could not get core units at IFS or Taikoo Li, are now looking for openings there. The Just Cavalli store on its first floor stands out. The mall is due to open officially in 2015. JLL estimates that by 2017 Chengdu will have about three times as many shopping malls as it does now, and Intime, Joy City and Guomao are all on the long list waiting to open.

What seems certain is that in Chengdu, more brands will bring the hopes for China's inland market that went unmet in Shanghai and Beijing, and open more "first stores in the southwest."

Cover image: Chengdu IFS