China Consumer

Not so full of beans

Setback for Starbucks as it closes symbolic store

RETAIL STARBUCKS

Zhang Ziyi drops by for coffee

In 2007, Starbucks closed its most controversial store, located in Beijing’s Forbidden City. Opening in 2000, the store had riled critics for years, even after Starbucks had removed its logo in 2005. Rui Chenggang, an anchor on state television news, even led an online petition, saying the coffee house diminished China, garnering half a million signatures for his cause.

Fast forward to today and Starbucks is shutting down another store. Although a lot less controversial, the move has still been widely discussed in the Chinese media. That’s because the outlet is the first that the Seattle-based chain opened in China, and is located at the China World Shopping Mall in downtown Beijing.

The company has said the closure is a result of plans to move to a location nearby. “Starbucks has officially moved from the phase 1 of China World Shopping Mall to Phase 3 with even bigger space, even though this store has special meaning for a lot of our Chinese customers because it is where Starbucks’ first steps in China began,” a company rep told China Economic Times.

CBD No. 1, a shop on the ground floor of the China World Shopping Centre, was also one of Starbucks’ busiest stores in China. Located in the heart of the central business district, it is next door to a major subway station. As a result it’s been packed with white-collar workers and business people since it baristas first started pouring in 1999.

So why move? According to staff at the store, the shop is closing because of a rental hike. “Our daily income is Rmb30,000 ($48,872), which only equals the price of a luxury handbag. Of course they want to sweep out our store. Our monthly rent is Rmb110,000, which is rather cheap. So the property management wanted more than we can afford,” an employee told the Financial Times.

According to property agent Savills, Beijing retail rents have been rising steadily since 2010. As of the end of last year, average monthly rents for the prime retail market (mainly high-end shopping malls) had reached about Rmb865 per square foot, an increase of 7% per annum.

Landlords have been able to push up prices in leading locations partly because the supply of space has been kept low by a lack of new developments. Most retail operators are essentially working for the landlord,” says China Economic Times, grimly.

(This contrasts with our observations on page 11, in which our article details a glut of malls being built in second and third tier cities – a situation that is driving down occupancy rates. Conditions in Beijing are very different, underscoring what we said in WiC200 that China is best thought of not as one property market but as hundreds of individual ones, each with separate supply and demand dynamics, making generalisations problematic.)

Industry observers say the increase in rents at stores in first-tier cities in particular could slow Starbucks’ further expansion in China. Previously the chain had said it expected to have more than 1,500 Chinese stores by 2015 from 800 currently. But as many of its leases in high-rent shopping districts in Beijing and Shanghai come up for renegotiation, some of that growth may be a challenge, investment researcher Xiao Yujia told CBN.

Meanwhile, Beijing residents have been showing a little nostalgia about the closure of this iconic Starbucks shop in China.

“Located in Beijing’s busiest commercial centre, the coffee shop has witnessed the struggles of so many young people. It’s sad to see it go,” one weibo user wrote.

But the switch from a cup of aspirational coffee to something aspirational with more of a luxury price tag may also have a message about China’s ongoing economic transition. Starbucks’ replacement at the aforementioned location in Beijing is Goyard, the French handbag label. And it’s perhaps no coincidence that four years ago Starbucks closed down its first outlet in Shanghai too, where it was replaced by the luxury brand Louis Vuitton, which opened its flagship store at the site of the former coffee house.


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