The synergy cure

"Eurobuild" invited four specialists: Alexandra Zentile- Miller, Michael Atwell, Sean Hanns and Ian Watt to talk about the condition of the leisure and entertainment market in Poland. It was over one hour of stimulating discussion which threw up a couple of surprises

A lack of variety?

Eurobuild Poland: Don't you think there is a lack of variety in the entertainment market in Poland? Most of the shopping centres only offer bowling and multiplexes. Why is that? There are other kinds of entertainment facility after all...

Michael Atwell: I think you do have other offers, but first of all we should start with what entertainment is. It's not only cinemas and bowling. You also have fitness centres and children's entertainment, for example. If you extend it further, then food and catering can also be 'entertainment'. It provides a leisure offer as well.

Ian Watt: We can probably list a lot of things which are entertainment, but whether it is understood and what its role is once it becomes a part of a shopping centre, is another matter. I don't think it is understood, certainly not by investors, whoever or wherever they might be, and more often than not it's not understood by managers, who don't grasp it as important to what is happening at centres. It's easy enough to get entertainment and identify it but to achieve some sort synergized model of the shopping centre is much more difficult.

Expectations and offer

EBP: So synergy is the key to success?

Sean Hanns: I think it is a lot more complex than just the general synergy. The basic business plan has to operate and work. Entertainment is known to be very, very volatile. Operators come in with extremely high rents ...

Aleksandra Zentile-Miller: Compared to the level of income which can be achieved from retail operations. So there is a business decision to be made by shopping centre owners, operators and managers, in terms of the level of income and the expectations they may have, and it's a difficult one to make.

EBP: Why is the income from entertainment so low? Are Poles too poor to spend their money on it?

Michael: It's not peculiar to Poland and it's a matter of what you offer.

Ian: Absolutely. Affordability is an issue, but you also have to find the right forms of entertainment. The big problem with entertainment is that people don't understand it and I don't think that operators are helping them. I know for a fact that movie operators don't come clean. They give you half the story. If anybody could actually get an operator to give him turnover-related rents, based on the popcorn and coca-cola sales they make in the cinema, then he'd be a better person than most people who run or lease shopping centres. During a recent conference in the US, the movie operators turned up and said "We are not in the food business" and a guy sitting in the corner stood up and said "Sorry, but we are in the food business, it's a five billion dollar business for my company alone." No owner of a building gets to see this revenue. Operators tend to keep that mask on everything, so you can never get to know what they are actually making money on.

Aleksandra: You'd probably discover that the cinema operators are not necessarily just earning money out of the tickets they sell.

Sophisticated cinema business

Ian: The movie industry is the most sophisticated in entertainment. It's not poor, so I don't believe it when somebody tells me there is no money in it.

Michael: What's happening in Poland? Cinema City, which took over the Ster Century cinemas, is looking to expand and take more space!

Aleksandra: This is the situation in Poland, but I think that generally cinemas are suffering around the world, though in a funny way. A number of screens have been built, which means that people are going to cinemas but there are too many of them.

Finding the right blend

Sean: What is important is finding the right blend. Most of the entertainment centres that we have looked at in Poland were poorly constructed and the guys were paying extremely high rents for the space they had. That just doesn't attract people. We were walking into areas - without mentioning names and saying "Why do you have 25 bowling lanes when nobody needs them?" There is no market for that. Why keep on copying something which doesn't work? People want entertainment which is appealing and attractive. But it costs money to develop it. Operators don't want to spend 10 mln dollars on an investment in Poland. It's difficult money to capture and get back.

Aleksandra: I think it's very interesting to talk about leisure and entertainment in shopping centres in relation to retail. This is something that is being discussed almost everywhere around the world - the context of shopping centres. The proportion and the relationship with retail, the amount of entertainment space which accompanies retail - this is the subject of the current debate. There are some models that have been tested in different countries but not necessarily in Poland. Here the formula has concentrated on cinemas and bowling and we wonder why it doesn't work. I think there is a much wider issue and it relates to the fact that leisure and entertainment is both cultural and conditioned by the economy. It is also country specific and the way people spend their free time is different in different cultures.

Ian: Things get complicated if we say entertainment is different in every country. At the end of the day, entertainment is entertainment. All the centres talk about is bowling and cinema. We have not got beyond them as entertainment. We don't look at the people. Poland is no exception: you can go anywhere in Europe and you'll find the hypermarket-anchored model of shopping centre. This model is not designed to keep people there for three hours.

Entertainment vs hypermarkets

Michael: Hypermarket-anchored schemes are another hot topic of discussion...

Ian: It's very difficult to make entertainment work in complexes like this, because the main reason for people going there is to shop in the hypermarket. They will not get five hours entertainment by pushing their trolleys. As I said, the model in Poland is not unique, but the problem here if you really analyse it, is that most of the new schemes which have been put together are hypermarket-driven. Let's not fool anybody that this is not what is driving centres, because it is. Try and borrow money for a scheme where you've got the majors for an entertainment complex - I don't think you'll get the loan.

EBP: Is it possible to remodel the hypermarket-driven shopping centre into a better functioning scheme?

Aleksandra: It's absolutely possible.

Ian: We did convert some centres, but it's an issue that one has got to look at. That's when expertise comes in...

Michael: It is already happening. Wola Park for example is going through that. Originally it was supposed to have a full cinema level at the top. Now it is being divided: part of it will have a cinema, part fitness, part entertainment and there'll even be a part for offices, which was not a part of the original plan. But they had an empty box at the top of the building, so they could be quite flexible with that. In this case it was easy, but once you've developed a scheme, and it has been running for a couple of years, remodelling can start to change the whole centre.

Boring centres

EBP: Don't you think that the design of shopping centres in Poland is too boring to encourage people to come and spend their free time there?

Ian: I cannot agree. The issue is who dictates a shopping centre's design. Unfortunately most of the projects developed in Europe are driven by hypermarkets. They are the expansionists. Everybody else loses out to their power. They need to get their market share so they come with their energy and are much more pro-active in getting sites. They can dictate, because they're putting the money up.

EBP: Sean, do you think that in Blue City the supermarket located on the lower floor will generate a footfall for the entertainment part which is almost at the top?

Sean: Any shop that opens creates footfall in a shopping centre. At Blue City we're trying to create different types of shopping centre experience, so we expect to attract very different clientele, which will be good for the leisure and entertainment part of the centre.

Michael: What will be your leisure and entertainment mix within your box at Blue City? Will it be a kind of traditional centre like Galeria Mokotów?

Sean: I think cinemas are important, though Blue City won't have one, but I don't know if this will be a problem within the centre itself. We are trying to break up the entertainment part into a children's area and a special adults' entertainment section with a club, restaurants and bars.

Ian: I find your comment that cinemas are important very interesting. Try to think about it from another perspective: a movie traps people for two hours. And at that time people don't spend money on anything else.

Michael: How many people, when they go to a film, have either shopped beforehand or will do so afterwards?

Ian: The figures are actually quite interesting. If you ask people, 30 per cent will say they go to centres because of the shopping. The rest aren't interested in anything else but the movie offer but the fact is that 70 per cent of the people spend money on something else, food for example. But in how many movie-related places, when the last movie is on, are the shops or restaurants open?

Michael: You try persuading food operators to stay open. The most that you can do is get them to keep working until the last cinema ticket at midnight. But even that it is difficult.

Ian: Retailers don't consider the movies. They don't look at entertainment as being part of this broader perspective. The people who design shopping centres and put these things together don't understand what people do when they are out enjoying themselves. It's typical to come out of the movie and want to eat something and I promise you that at two o'clock in the morning you will be hungrier than at 9 or 10 in the evening.

Entertainment (not) for all

Sean: There is also something else to consider while we are going through these different ideas: not all shopping centres actually need entertainment. Not all of them need cinemas.

Ian: I would agree with you that not all shopping centres need a cinema but to say that not all of them require entertainment would mean that some communities don't need fun. I don't buy that.

Sean: If you go into slightly poorer areas you'll find people have a much quicker shopping experience. They walk in, buy what they need and walk out. They don't shop or window-shop and that's dictated by the economy. It's a matter of disposable income and in those shopping centres as I understand them, there is a lack of the type of facility where you can actually - forgive me for this- dump a kid for a couple of hours, go shopping, come back, pick it up and leave.

Aleksandra: What about dumping a husband for a couple of hours? Parking a husband for some time while the wife goes shopping! Anyway all of you have probably heard of the Kid City concept, which was presented earlier this year in Budapest. It was created in Mexico and it's coming to Europe. It's fantastic as a concept where you can leave your children for three to five hours. So husband and a wife can have little peace and quiet and can even go across the road and spend the afternoon in a hotel room.

Social responsibility

Ian: Things only become so commercially-driven, by investors who are only interested in cash. They don't care about social responsibility and what they are doing for the community, is probably the furthest thing from their minds.

Michael: 10 to 15 per cent of a shopping centre's offer will change in the first year. If that's 25 per cent you should then realise that you've got the scheme completely wrong and maybe the investor didn't do any research, didn't work out what the catchment area was, who the customers were and what their income profiles were. In the end, the product is wrong because the conception was wrong and the job at the beginning was not done properly.

Ian: Nobody has a unique franchise on a community. I think we're failing to look back at history. We keep thinking we've invented everything. It's not true! What we forget is that 2,000 years ago they built the Colosseum and anybody who wanted to get in had to buy a ticket. Outside there were a lot of other activities, but they had 5,000 people if not more and look at the size of the population 2,000 years ago in Rome. It started off with a much lower profile - play-acting for example, but when people said "no, we want more action!", they were provided with that. In former times retail actually revolved around entertainment, because that was where people went to meet and socialise. Retailers knew people would be there, so they used to take their baskets and sell stuff to people. It wasn't the other way around. I think we're missing that. Can you imagine buying a car because of the engine? People want to feel the seats and sit behind the wheel. They want to buy the experience. Shopping centres are the same. Even poorer people want a place to go and meet. If the offer is right they will also spend four hours there. Poorer people can't afford some things, like pay television and computers, so education comes into it. As you educate people they aspire to more, because as they learn more, they get to know about things. Entertainment offers in poorer communities are not about the more expensive movies. There is an educational component which we are missing.

Whose fault?

Sean: I understand what you are saying, but if we take the specific model why doesn't it seem to be working in Poland? Is it because we don't put the right amount of teaching and learning into it? Or is it maybe because we need to get back to the basics of the business. If an operator purchases quite expensive equipment and doesn't get financial returns at extremely high rents, it's because the scheme is not working and the reason is that he doesn't have the right entertainment centre...

Michael: In Warsaw there is scheme where the entertainment component has closed and gone now, though everyone expected it to be very successful in this location because of the footfall and the high-income neighbourhood etc. But should the investor have let them go? Or kept them in and started financial negotiations?

Sean: Kept the entertainment component and made it workable.

Aleksandra: Made it workable for the community.

Ian: But there is a reason for that situation.

Michael: Is it a greedy investor?

Ian: A poor operator, because the operator has put something in and it's clear he has not done the market research. Now suddenly it is the investor's problem. Until we get that part right, believe me operators will have no credibility with investors. Investors say this is high risk because you have to understand how much money I put in there in the first place, just to create this box and I need to get a return on it. There is too much talk about money - it's important of course- but not enough about the customer. If you don't get it right for the customer and don't care what the customer wants, he is not going to use what you offer. So you can build your ego, do whatever you want for your ego and think it's going to make money, but it doesn't make money. The money comes from people, not from the tenant.

We would like to thank Iwona Kamysz

of Cushman & Wakefield H&B

for her hospitality and the use of the company's conference room