Outlet malls thriving in China

While China's economic growth has slowed to 7.4 percent, the lowest in 24 years, two retail sectors are thriving: e-commerce and outlet malls.

The success of China's e-commerce is no surprise as Alibaba (NYSE:BABA) has taken China and the rest of the world by storm. During last year's popular Chinese shopping day, Singles Day, Alibaba's sellers made $9 billion dollars in just 24-hours. However, the rising popularity in Chinese outlet malls may be more of a shock.

There is a lot of talk in retail about the rise of the middle class and expendable income in China, but the luxury market shrank 1 percent in 2014, reported Women's Wear Daily. Overall, traditional luxury brand sales dropped from 20 to 30 percent gains to flat in just a few years, due somewhat to emerging brands and an economic slowdown.

But the country is continuing to see a rise in discount malls. RDM, a company that manages one development in Tianjin with another six in the works scheduled to open by the end of 2017, reports an average of a 12 percent return on investment and 25 percent annual sales growth since 2011.

Another developer, Sasseur Group, launched its fourth development in Nanjing this month with another four planned to open this year. The company reports 30 to 40 percent same store sales growth in recent years.

The growth can definitely be attributed in part to the decline in the luxury sector, as unused goods get fed into the outlet division. In addition, urbanization has opened up new markets in second and third tier cities in China. Finally, consumer tastes are changing.

"China's middle class segment is growing very quickly. This group wants quality at a good price," Vito Xu, chairman and president of the Sasseur Group, told Women's Wear Daily. "With the anti-corruption campaign, the political environment has changed. What we have noticed is that more and more consumption is for personal consumption instead of gift giving—outlets are the right [place] for people buying for themselves."

Online and outlet shopping for discounts has hurt some American retailers with physical stores in China. For example, this month Best Buy (NYSE:BBY) announced that it plans to sell off its retail business in China, and Walmart (NYSE:WMT) has noticeably struggled.

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