It's a make-or-break period for Chinese real estate giant the Wanda Group, which is hoping its transformation plans will lead to greater revenue in the coming years. The company's turnaround plans have included the expansion of its tourism business and the mass closure of several department stores. Analysts said the changes have been sparked by the need to generate more cash flow, which the company is badly in need of at the moment, according to a Shanghai Securities News report on July 24.
On several occasions, the Wanda Group founder Wang Jianlin has said that by 2018 two thirds of the company's revenue and profits should come from the service industry. At the China (Sichuan) International Tourism Investment Conference held earlier this month, Wang revealed that Wanda's latest target for its tourism businesses is an annual revenue exceeding 100 billion yuan ($16 billion) by 2020. Beijing News reported on July 23 that Wanda wanted to overtake Walt Disney as the largest tourism company in world. With this goal in mind, Wang said that his company had already started the merger and acquisition of several tourism companies and attractions abroad.
Wanda's total land resources available for construction span over 67.9 million square meters, but huge investment will be needed for future land development. By the end of 2014, Wanda was indebted to the amount of 235 billion yuan repayable within a year and owed more than 190 billion yuan in bank loans and other unpaid bonds. Although the IPO in late 2014 helped the company raise 28.8 billion HK dollars ($3.7 billion), it was insufficient for tackling its huge debts.
In order to meet the demand for greater cash flow, Wanda has decided to explore creative and exclusive ways of building a tourism empire from scratch. The company's strategy includes building a "Wanda City" at several tourist attractions in China. Currently, ten projects have been initiated under this plan - three of them are already open to the public.
The "Wanda City" concept mainly comprises a giant building equal or even bigger in size than Beijing Capital International Airport's Terminal 3. The building contains functional elements such as theme parks, hotels, restaurants, shopping malls and even hospitals. In line with Wang's vision, there will be at least 15 Wanda cities in China by 2020, each receiving over 10 million customers per year.
Wanda has also acquired dozens of large travel agencies over the past three years. By 2020, these travel agencies are expected to generate 40 billion yuan for the Wanda Group, according to Shanghai Securities News.
But while the Wanda Group is focusing on business expansion in the tourism industry, it is doing the opposite for other businesses in its stable. The group is pressing ahead with the closure of several Wanda department stores and KTV, that have long been important sources of revenue for the group. According to Wang, the department stores are not making money. In 2014, their total revenue was 15.5 billion yuan, an increase of 39 percent over the previous year, but still nine percent lower than estimated in the group's development plan. Given the urgent need for more cash flow, the figures were unsatisfactory. In order to tackle the dropping cash flow of its department stores, over 40 of them were closed within half a year, which account for half of the total number of department stores within the Wanda Group.
