The World's Largest Mall Offers a Lesson

South China Mall is the world's largest shopping mall, according to this article in The National.

At over 7 million square feet, it is double the size of the gargantuan Mall of America in the United States. It has an amusement park including a roller coaster; an indoor rain forest; and Las Vegas-style replicas of famous places, including a Venice canal and the Arc de Triomphe.

But it has one big problem: it's nearly empty.

South China Mall is designed to have 1,500 stores. Unfortunately, only a handful are currently occupied.

The developers expected 100,000 visitors a day. Instead they get 10,000, if that.

Opened in 2005, it was once hailed in the New York Times for exemplifying China's new consumer middle-class.

Then something went terribly wrong.

What went wrong is that the shoppers never materialized.

Recently a number of articles and blog posts have been written about the deserted South China Mall. Various points have been made about conspicuous consumption and building projects in China.

But what the South China Mall signifies to me is the glaring lack of advance planning before constructing it -- and the failure to understand your market.

Bloomberg reports that the citizens in the nearby city Dongguan, the area of China where the South China Mall is located, are mainly factory workers. They're factory workers who have come recently from nearby farms. They may be young women living in a company dorm, making a few hundred dollars a month, of which they save whatever they can, and send the rest home to help their parents. It's hardly the newly affluent middle class that a mall like the South China Mall is designed to attract. Many of the nearby workers can't afford anything in the mall, except perhaps a fast food meal. Or to sit near the fountain.

Yet, spurred by China's building craze and a desire to be the "world's largest" the mall was built. The market for the mall was underestimated or perhaps not considered at all.

The mall builders may be great at building, but not so good at strategic market planning. It's amazing how otherwise smart people, commanding millions of dollars, can make basic mistakes on such a colossal scale.

In a way, it's heartening ... makes me feel good. Not that I am one to gloat over others' mistakes (I've made too many mistakes of my own). But if businesses with hundreds of millions of dollars and a lot of smart people can make mistakes, then I won't be so hard on myself in my own small business.

There's a lesson here for any startup or small business planning a new product launch or expansion. And that lesson, very simply, is: make sure there's demand for the business. Make sure there are customers ready to buy what you plan to sell. Make sure they can afford what you are selling, at the price you set.

Do your homework. In the case of a startup or new business line, that means conduct research and estimate your market honestly.

I am going to burn the above image into my brain. Whenever I think of launching a new product or a new business, I will remember the vacant South China Mall ... 3 years after opening, empty with paint peeling and escalators closed off for lack of rented storefronts and visitors. I don't want any business of mine to be like that mall.

(Credit to The National for the image - go here for more photographs).