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Community commerce: focus of Shanghai's commercial development

I. Community commerce becomes a popular key to development

1. Market demand

The city centre of Shanghai is running short of land resources. In the meantime, improvement to transport access, particularly with the development of rail transport such as metro and light rail lines, has facilitated the extension of residential areas to the urban fringe. Yet the formation and optimisation of a new community basically depend on the availability of supporting commercial facilities. According to survey findings, about 40% of household expenditure goes to community commerce in residential neighbourhoods.

Community commerce not only solves the former problems encountered by residents of new developments in shopping, seeking services and enjoying convenient daily life, but also provides residents with leisure and socialising facilities, enabling them to take a walk after eating or meet with friends in the community. Such community commerce operations allow residents to have leisure while spending and entertainment while socialising.

Apart from commercial districts in the central urban areas, fully functional community commerce facilities can also provide local residents with the third activity space besides their living quarters and workplace. Community commerce can offer opportunities for local residents to socialise and get closer to one another, changing some existing phenomenon of neighbours having no interaction all along. Shanghai has taken the lead in becoming an “aging society” with seniors constituting nearly a quarter of its population size.  As old people have ample leisure time, fully functional community commerce operations with suitable positioning can provide them with the best facilities for shopping, leisure and socialising.

2. Government attention

It is very important that government departments should pay attention to people’s livelihood, community service and community commerce. At the community work conference of Shanghai City held in November 2011, Yu Zhengsheng, the then Municipal Party Secretary, asked that efforts should be made to strengthen the community services closely related to people’s livelihood. In recent years, the Ministry of Commerce and the government departments concerned of Shanghai have introduced guiding opinions on speeding up the development of community commerce, as well as rules on community commerce facilities, etc. The 12th FYP has designated community commerce as the key development sector and put forth specific requirements on the supporting business formats. For basic business formats such as wet markets, supermarkets, general eateries, barber shops, bathhouses, repair shops and recycling depots, they are the essential commercial facilities of all communities. As for business formats under guidance, such as hypermarkets, fresh food supermarkets, Chinese and western drug stores, pastry shops, department stores, shopping centres, clothing and accessory stores, as well as watches and clocks, eyeglasses, hardware, home appliances, books, audio-video equipment, beauty service, spa, fitness, image design, photo finishing, intermediaries and rental agents, they can be provided as appropriate depending on the local conditions.

3. New room for business

The commercial development of most city centres is already saturated where plots for new commercial projects are becoming more and more limited. On the contrary, community commerce has an immense potential for development because not only is the newly-developed community in need of supporting commercial facilities, older communities also have the need to replenish, adjust, optimise and upgrade their existing commercial facilities which can hardly meet the rapidly-developing consumption demands.

4. Developer attention

Following the implementation of macro-control measures, the property market has fallen into recession, driving some developers to the market of community commercial properties. Community commerce indeed raises the value of commodity housing where properties with optimal supporting commercial facilities will have a faster sale.

As a result, the community commerce sector becomes a new market force where community shopping centres, community department stores and community hypermarkets are developing robustly with increasing diversity in their functions. Among the shopping centres in operation in Shanghai, there are more than 20 community shopping centres, accounting for 30% of the total business area.

II. Major development considerations of community commerce

While community commerce may have very good potential, rash development is rampant where projects are hastily implemented without detailed study and analysis of the population size and structure, income level, distribution of existing commercial facilities, and local conditions of the surrounding areas. Nor is there any functional positioning of the community commerce projects. Under the circumstances, development risks are gradually emerging.

In fact, each community has its unique consumption demands which can be vastly different from one another and therefore requires in-depth market segmentation.

1. Diversified community consumption

The demands of people living in the community not only confine to shopping, but also include all kinds of services related to their daily lives such as catering, entertainment, leisure, as well as hairdressing, bathing and repairs of home appliances. The meaning of “basic necessities” is ever changing and enriching, leading to the emergence of new business formats in the community.

The consumption patterns of aging communities and new communities are hardly identical. Demands for commercial facilities from residents of upmarket apartments and villas are vastly different from those of affordable housing and low-rental housing. In turn, the community demands for business format are also diversified, calling for specific business layout for different communities.

2. Levels of community commerce

Based on the population size of the community, community commerce can be classified into three tiers, namely community, residential area and neighbourhood. At community level, the major commercial formats include shopping centres and large supermarkets as the core, supported by various professional shops, specialty stores, and providers of daily life services, leisure services, and cultural and entertainment facilities. At the residential community level, supermarkets and markets are the core, supported by a network of daily life services and leisure services providers; whereas neighbourhood commerce is characterised by convenience stores and  supported also by a network of commercial and convenient facilities and services related to people’s daily lives.

3. Deciding factors for operating size and positioning

The first factor is the population size of the surrounding residential areas and the consumption level of local residents. The size of community commerce can generally be calculated on the basis of 0.7 m2 of commercial floor area per resident on average. Next to consider are the demands of the schools, office buildings, factories and park zones in the surrounding areas, such as the demands of the white-collar office workers and social organisations including government offices and enterprises.

4.  Siting of community commerce

The layout plan requirements of Shanghai’s commercial network specify that the siting of community commercial centres should, in general, be set at the centre of the community, taking into account other factors such as the population distribution and the service scope. New community commercial centres should be located with or next to community service centres, community health centres (health services) and cultural centres (community cultural centres, activity centres, libraries, and universities for the aged) as far as possible, forming a four-in-one integrated community commerce and living centre. As such, it will not only facilitate the consumption of local residents, but will also bring customer flow to the business operators.

5.  Development pace of community commerce

For community commerce, particularly that for newly-developed community, the control in the development progress is very crucial. The development of commercial facilities in the community can neither be faster nor slower than that of the residential buildings. If commercial facilities come after residential buildings, the sale of the housing units and the intake of residents will be affected. If they come before the residential development, the nurturing period of the commercial facilities will be greatly extended and in turn dampens profit margins. The speed of community commerce development should be kept in pace with the construction of residential buildings in the community, and should be in coordination with the transport development of the surrounding areas, as well as tie in with the population growth of the community.

6.  Features of community commerce

The service scope of community commerce is relatively small with the local residents as the basic customers. Its business formats and commodity mix should be strongly targeted and reflect the element of convenience. While the commercial facilities in the city centres must be complemented with adequate parking spaces for motor cars, community commerce has a lesser parking demand for motor cars so long as there are adequate parking facilities for bikes.

7.  Layout principles of community commerce

Community commerce must be closely related to the community, providing convenience to the local residents but not disturbing or affecting their lives. The planning requirements specify that the ground premises (shop premises at the ground level of residential buildings or commercial premises at their podiums) cannot operate eateries with fume emission or entertainment facilities such as KTV that may cause noise pollution or light pollution. Other business formats with environmental pollution or safety hazards such as building materials stores, car wash and farm produce markets are also prohibited.

8. Recruitment of community commerce operators

In general, the size of community commerce is not very big, and the choice offered to consumers is more limited whereas consumers will have higher expectations on the brands of commercial enterprises. Besides, the profit margin of community commerce is relatively meagre and the operation has a more prominent feature of public interest. The planning requirements specify that community commerce should first recruit large commercial enterprises and time-honoured brand-name chain enterprises with a good scale, strength and experience that have greater popularity and better reputation,

9. Upgrading of community commerce

The scale and format of community commerce need to be expanded and upgraded in a timely manner in accordance with the increase in population size and the rise in income level. As a result of improved access, population increase and changes in business operation, some community commercial centres will have their service scope expanded and become commercial centres at the regional or metropolitan level.

from special correspondent Qi Xiaozhai, Shanghai

Content provided by Picture: HKTDC Research
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