A particular brand of welcome

According to CBRE’s ‘How Active are Retailers Globally?’ report, Poland is the 13th (out of 60) most favoured location for tenants across the world, with 14 pct of the 130 retail companies surveyed wishing to expand their networks into this country. American companies are currently highly active when it comes to growing their chains – almost half (47 pct) have been drawing up large scale expansion plans, and 10 pct of these have declared an interest in the Polish market. Where does the interest stem from? “Increasing trust and a revival in the international retail tenant community is now bearing fruit in the form of the return of large scale expansion plans. Even though the pace of growth has decreased over the last few years, global tenants have been clearly expressing an interest in extending their investment in retail chains in 2014. The broad range of markets they are choosing highlights the continuing significance of international expansion,” explains Peter Gold, the director of international retail at CBRE. As well as the more optimistic approach of tenants, another major factor is the robust health of the Polish market. The economy weathered the onslaught of the credit crunch much better than most other countries in the region, and indeed in Europe. The political situation is stable, while the purchasing power of Poles has continued to grow. Since major chains are already present in shopping centres, others should be following in the future as the typical list of tenants becomes longer and more varied. Particularly now that master franchisee GPoland is entering the market with a new initiative.

Focus on Poland
“More than 60 retail companies from abroad have made their debuts on the Polish retail market over the last two years. This clearly shows that the Polish market is attractive for international tenants. Most of these are from the fashion sector, but there were also a few tenants from the children’s and babies’ clothing, interior design, jewellery and accessories segments,” remarks Anna Wysocka, the director of retail for JLL in Poland.
JLL recently held a discussion in London aimed at introducing CEE markets to UK retailers, promoting their potential, and encouraging these networks to expand into this part of the world. Beatrice Mouton, JLL’s regional director responsible for the CEE region, made a number of interesting points about the conditions for the development of retail business in this region, identifying as the main advantage of the Polish market the highly developed markets in provincial towns and cities. Excluding Warsaw there are as many as eight large cities in Poland, whereas Slovakia, Hungary and Romania are each dominated by one main city – the capital. Poland also stands out when it comes to the financial power of its inhabitants. “Poland has the largest and the most stable market in the region. Added to this is the fact that the tenant mix in each of the major shopping centres is virtually identical. Poles are hungry for new brands,” claims Beatrice Mouton. Lessors are of the same opinion. “The interest of foreign tenants in Poland has been growing and is based on the marked success of the Polish retail market, such as in the quality of the retail space, the large number of strong regional cities, and well-designed facilities. Tenants can also benefit from the strong economic fundamentals, Polish shoppers’ extensive spending on clothes, and the varied offer of both local and foreign brands. In our experience, if a company is considering an entry onto the Polish market, it will do so sooner or later,” claims Paul Cawood, the leasing director of Balmain Asset Management. Fashion brands that can react quickly to changing trends and update their collections often are doing particularly well in Poland. “Poles are a very demanding and aware group of consumers. They pay a lot of attention to the way they dress, they know their way around fashion, and that is why companies offering a variety of clothing lines do very well in Poland, whereas shops that sell conservative and traditional cuts and outfits do not usually take root. In the Czech Republic, however, we have the opposite situation. Brands that focus on universalism and comfort sell best,” comments Beata Kokeli, CBRE’s senior retail director. Indeed, the financial results of clothing chains show that the leaders – the LPP brands, H&M and brands of the Inditex group – perform very well in Poland. Still, it should be borne in mind that the offer has a great impact on the sales – if a collection is unsuccessful, even the largest fashion giant can fall into customers’ disfavour. Companies that are well-known and well-established internationally will always tend to do better when it comes to international expansion, regardless of the country in question. However, foreign debuts do not always result in a long and fruitful presence in Poland. The first entry of Burger King, which was brought to Poland by International Fast Food Polska, was a failure. The chain is currently developing under the wings of Amrest, which is also acting as a surrogate mother company to KFC, Pizza Hut and Starbucks. Domino’s Pizza, which is now being developed by DP Polska, is making a second attempt to win over Polish customers (its previous expansion was supervised by Pizza King Poland). Swedish clothing chain Lindex, which decided to open its first shop in Poland in 2012 and has only two outlets now, is another that has so far failed to make a major impact.

One leg in Poland
Last year’s healthy figures for the number of new tenants has led to increased hope that the trend will also continue this year. The entry of British department stores chain Debenhams could turn out to be a hit. The company is now in talks with the owners of a number of Polish shopping centres, but it has been revealed that a master franchisee from outside Poland will be responsible for the growth of the chain here. “Poland is attractive to many foreign brands. A new concept of the Adidas chain, Neo, is just entering the market with its first shop in the Arkadia shopping centre. Other retailers that could start expanding into the country this year include the Urban Outfitters clothing chain, a number of Spanish footwear brands, an Italian clothing chain and a fast food chain. However, there are a few brands that have put off such expansion plans for various reasons. Companies operating on low margins, such as Primark, are worried about currency fluctuations outside the euro-zone,” remarks Beata Kokeli. “The first Polish play area from Ukrainian chain Leopark was launched in the Bonarka City Center mall in Kraków at the end of February. Brands such as See by Chloe, Toma o Tomo, Kiko Cosmetic and Suit Supply are also planning openings soon,” adds Anna Wysocka. What advice could be given to those who are wondering about expansion into Poland? “The most important thing is familiarity with the specific market and target group. New tenants should check, either through their employees or a professional advisor, how Polish customers operate, what they are interested in, and whether a given brand has a chance of making an impression on Polish consumers,” emphasises Beata Kokeli. The market conditions are equally as important. “The first few items of advice depend on the segment the brand belongs to and the required size of the outlets. It is best to open in centres that are already in operation and have a well-established position, because these guarantee a sufficient level of footfall from the outset. It is most difficult to find an empty outlet in these centres because vacancy levels are close to zero. But once a shop has been opened in such a place the brand has time to make its presence felt and to secure its position for the future,” comments Anna Wysocka. “You need to survey and analyse the market rigorously; you need to be demanding when it comes to the location, but also view the market broadly and consider a variety of possibilities. It could be towns and cities of different sizes that provide the best opportunities for generating good results, and not necessarily the largest ones,” believes Paul Cawood, who represents such tenants.
Another person who expressed his views on operating in Central European countries at the JLL debate was Pavel Čmelík, who is responsible for developing T.M. Lewin, a British chain of elegant menswear stores. The company is planning to enter the Polish market by opening its first few boutiques. The experience it has gained in the Czech Republic, where it is already present, should be of help (T.M. Lewin has four shops in Prague). “When you think about expansion into CEE markets you need to take into consideration the unique characteristics of the countries and their history. Under no circumstances should you treat these markets as inferior and a place to offload old stock, because this will only backfire on you,” warns Pavel Čmelík. But there are other issues. “The way stores function in Great Britain and Eastern European countries differs. You need to appreciate that in the latter the quality of customer service is considerably lower and the art of displaying products to achieve the best effect is still in its infancy,” adds Pavel Čmelík.

In good hands
Those who opt to open a store in Poland can do this in one of two ways: direct development or development in cooperation with a franchise partner. The method by which the company launches its new outlets is determined by the strategy it chooses. “Some brands, particularly if they are top-shelf, enter new markets directly. This acts as a barometer of the quality of the market for other luxury brands, such as in the case of the opening of the Louis Vuitton boutique in Warsaw. Other brands that have opted for direct expansion include Michael Kors, Samsung, Guess and Oryginal Marines,” explains Anna Wysocka. What about master franchisees? Not so long ago, Empik Media & Fashion announced that it had decided to close this side of its business. The operations of its subsidiary – Ultimate Fashion, which has brands such as Esprit, Wallis, River Island, Aldo, Mexx in its portfolio – are to be phased out. EM&F did not want to comment on the situation. However, it is clear that the group is in the process of restructuring and will now focus exclusively on the development of its own brands, i.e. Smyk and Empik. Obviously fear has played a part in this decision. What will happen to the outlets when contracts expire? Will another partner emerge to run the stores? The news that one of the largest companies of this kind in Poland has pulled out of fashion franchising is rather worrying. Another master franchisee, Alshaya, has revealed its plans for the future, or rather the lack of such plans. The company will not be introducing any new brands onto the Polish market before 2015. Nevertheless, the experts are saying we should stay calm. “The development of foreign brands on the Polish market is not dependent on large franchisees. It is often the case that smaller companies or private individuals obtain licences for operating a given brand. The last few entries of top-shelf brands onto the Polish market provide evidence that foreign tenants are not necessarily looking for a franchisee that is a huge fashion group. They often decide to cooperate with smaller businesses that specialise in a given sector,” says Anna Wysocka. Pavel Čmelík confirms this and points out that the choice of a partner in a foreign country is the most important issue that should be taken into consideration. “It has to be a well-proven firm with references. An entry under a joint venture is a good idea, but it carries quite a lot of risks. The costs of fitting out an outlet and leasing a suitable area are high and the success of a given brand is not ensured. It is best to have someone who knows the local environment and market conditions inside-out. We are currently looking at a solution involving the participation of advisers who do most of the work: the market analysis and the search for a suitable location,” adds Pavel Čmelík. Examples of foreign companies in Poland include Fashion Island, which owns stores such as Attrativo and Sam 0-13 and made its debut last year, as well as the latest accessories brand – Fullah Sugah. Another firm that should be mentioned is one that has experienced dynamic growth on the Polish market as a master franchisee of premium brands – GPoland. The company is the agent for such internationally renowned brands as Armani Jeans, Liu Jo, Pinko, Patrizia Pepe, DKNY, Calvin Klein Jeans, Furla, Love Moschino, Pinko, Ralph Laurent, Manila Grace and Fabi. GPoland has been continuing to acquire new partners both among brands and franchisees. Its latest proposals are French brand Axara, German brand Basler and Italian footwear brand Fabi. “After 20 years of our company’s activities we are in an excellent position to understand the potential of the Polish market. We have noticed that there is quite a large group of consumers in Poland who are aware of and interested in premium brands. However, you need to take into account the fact that the competition in this segment has been growing and the largest Polish cities have become saturated. In Warsaw the saturation is virtually complete. The constant rent growth and other costs that impact the profitability of shops are also very important factors in large centres. Of course the business risk also grows considerably in such an environment. In the capital city rents have doubled over the last five years from EUR 45 to EUR 90–100 per sqm per month in the best locations. The cost to the possible turnover ratio is now too high,” says Tomasz Wasiucionek, the commercial director of GPoland. Master franchisees also have to face other challenges. “On our market it is difficult to find a partner to operate a store who has the necessary experience and knows the subject thoroughly. However, this should come as no surprise to anyone who appreciates how young our market is compared to Western markets with advanced retail cultures. We have been in contact with many interested parties who have the required capital but no idea of how to operate a store. Some of them give up when they realise how much work you need to put in in order to succeed,” explains Tomasz Wasiucionek. Yet new opportunities are opening up for the company all the time. One of them is entering more niche markets. “There is still some room in our market for good quality footwear and bags, while the men’s clothing market has great scope for further development. Things are similar in terms of the availability of children’s brands. We will try to fill such gaps slowly and in a rational manner,” reveals Tomasz Wasiucionek. Another development direction is also very promising. “We can see substantial interest in multi-brand stores in smaller towns, such as Głogów, Zielona Góra, Przemyśl, Zamość, Elbląg and Kołobrzeg. In such locations the demand for brands in our portfolio has also been growing. “Of course, being present in smaller towns requires a slightly different approach compared to the larger locations. So far there has been no market in such towns for single brand stores, thus we have come up with the ‘Made in G’ concept. This will be a multi-brand project opened on a franchise basis. The first few openings are planned for the autumn in Radom, Olsztyn and Lublin. The brands in GPoland’s extensive portfolio will be selected with the specific market in mind. We provide our franchisees with everything they need to develop their business: the concept, know-how, specialist support in terms of displaying the goods, as well as training sessions for the staff. I estimate that we will manage to open twenty stores, for both clothing and accessories, over the next two years,” emphasises Tomasz Wasiucionek. Everything points to the likelihood that the Polish market will continue attracting new tenants from abroad. But to successfully exploit this, you need to carefully assess what is possible, seize the opportunities this offers, and then the openness of Polish consumers to new brands should do the rest.

Helen Maguire
the managing director Poland of Toolbox Marketing Poland

Quality or price?
Polish consumers have always been cost- conscious and this has led to most seeking out less expensive products. On the other hand, recent Polish economic success has resulted in a significant number of affluent Poles and a growing middle class, which are driving demand for quality and luxury products. When we examine the market research carried out for shopping centres in the smaller secondary and tertiary cities, in Poland we always see the same responses – value for money is the most important factor, but also that popular brands are missing. The other third of the population provides a very attractive market for Polish and international premium and luxury brands. Those consumers are driven most of all by the quality of the purchased goods or services (80 pct), the aesthetics of the product (58 pct) and prestige (54 pct). Almost every second shopper is also taking into account the uniqueness of the product or service. More than half of the international premium brands not present in Poland say this market is too small for their brands. However on the other hand only a quarter deem the Polish market uninterested or unaware of such brands. A significant barrier to entering the market is the variable currency rate currency (66 pct of respondents, according to the KPMG annual report on the luxury market in Poland for 2013). Other obstacles are the high level of competitiveness and the regulatory environment (legal, tax, administration).