Back to retail basics

The retail market in Poland is about to face some new challenges. Poles, who are slowly being overwhelmed by the sheer quantity of different goods on offer, have clearly sated their first cravings for purchases. They are now turning to managing their free time better and so are now often giving large shopping centres a wide berth. Even though the effects of these changes in behaviour will only really be visible in a dozen or more years, developers and shopping centre owners need to respond to them early. A passive approach now is likely to come back to haunt them in the future and could even store up serious difficulties.

No turning back

Over the last 25 years the Polish retail market has caught up with the West and the quality of retail facilities is now entirely up to European standards. Poles are very good consumers – they crave new things they’d like to have and buy. The success of shopping centres in Poland has been based on these factors for a long time. However, we are gradually seeing modern technology, haste and the fast speed of living is taking its toll on consumer behaviour. Increasingly mature and educated customers are starting to value their free time, and are thus avoiding visits to malls and opting for alternative shopping methods. “I would not overestimate this factor. People will not give up on visits to shopping centres because they do not go there just to buy things. The atmosphere, the willingness to stay around people and the pleasure that shopping provides also count,” emphasises Rafał Pruba, the director of the leasing department at ECE Projektmanagement Polska. The numbers seem to support his view. In spite of the fact that the footfall and turnover in shopping centres have been tailing off slightly, the decrease in footfall has not been significant so far. The Turnover Index, which has recently been published by the Polish Council of Shopping Centres, is a summary of tenants’ profits for August 2014. The Council collates the data from 84 shopping centres mainly located in large cities and with a combined leasable area of 1.36 mln. “In August this year there was a 2.1 pct decrease in turnover compared to the same period in 2013. The downward trend that could be observed at the beginning of the year is slowing down – the decrease in turnover was more serious from the January to August 2013 period, when it amounted to 2.9 pct. Not all the product and services categories have seen falling revenue. Services tenants have had good results (a growth of 19 pct over the last year) as well as household products and accessories retailers – who saw an improvement of 4 pct. The clothing and accessories category has the greatest impact on the general index and cumulative results. The downward trend in the grocery and restaurant categories has been slowly reversing since spring this year,” says Anna Szmeja-Kroplewska, the general director of the Polish Council of Shopping Centres, referring to the results of the study. As she goes on to add: “Unambiguous and comprehensive data for the total footfall in shopping centres in Poland does not exist. According to the data from 56 shopping centres for the Footfall Trends study in August 2014 by the Polish Council of Shopping Centres, the average number of customers in Polish retail facilities is still at a stable level. Because of the large number of new shopping centres opened in the regions covered by the report, this is a satisfying result that confirms the strength of the loyalty of customers,” she remarks. Meanwhile, Experian Footfall’s data indicates that there was a 1.7 pct revenue fall in a number of selected Polish shopping centres compared to the same month in 2013. This is the result of a number of factors, such as the opening of new facilities in a given city or town, the weather, and the economic situation on the macro and micro scale. However, a careful observer will notice a certain fatigue and growing impatience with shopping in malls. The reasons mainly include time saving and the desire to buy quickly and easily. This has led to the expansion of convenience formats, which offer comfortable shopping, for example, when going home from work. There are several dozen brands of such convenience centres active in Poland right now and new ones are being opened all the time. So consumers are changing their habits. “It seems to me that developers/owners have ceased following and analysing what has been happening to retail across the world, particularly in the United States, which offers a parallel to what is happening in Poland,” says Grzegorz Makowski, a sociologist and the author of a book entitled ‘The Temple of Consumption. The Genesis and Social Significance of the Shopping Centre’.

Back to the beginnings

While the shopping offer is losing its appeal for Polish customers, their interest in entertainment and restaurants has been growing. On the one hand Poles do not want to spend too much time on shopping, on the other, shopping centres have become meeting places for them. They go to malls to go to the cinema, to the gym, to meet in restaurants and cafés, and can leave their children in the care of activity organisers. The situation is starting to resemble the beginnings of the development of modern retail. In ‘The Temple of Consumption. The Genesis and Social Significance of the Shopping Centre’ book Grzegorz Makowski writes that UK department stores in the past were not just places for consumption. They also served a social role – they were meeting places for women (who were the first consumers in the modern understanding of the word). Women’s clubs and organisations were established in them, concerts and exhibitions were organised and reading rooms and post offices were opened. The author of this book is now forecasting their return to the urban space. “In their early days department stores operated as event centres. I can see a demand for interesting places where conferences and meetings could be organised and this opportunity could be used to do some shopping or have a coffee,” remarks Grzegorz Makowski. Is this a return to its roots? “The proportion of entertainment and gastronomy is shopping centres will continue to grow. In Sukcesja, which is being developed by us in Łódź, we have designated app. 35 pct of the leasable area in the entire facility, which exceeds 51,000 sqm, for services and entertainment,” says Krzysztof Apostolidis, the president of the board of Fabryka Biznesu, the developer of the Sukcesja shopping centre, which will open next year. ECE Projektmanagement, which does not have any centres with cinemas in its Polish portfolio, is also prepared for such a situation. “We create shopping and service centres, but we leave the development of entertainment centres to others. However, this does not mean that we do not follow trends. I have not ruled out that centres built by us in Poland in the future will include cinemas and a broader entertainment offer. However, our existing malls operate flawlessly at this stage and our restaurant offer is perfectly structured” claims Rafał Pruba.

More to a mall than shopping

Some people consider spending time in shopping centres to be a shallow activity, while others think it is fun. Consumer behaviour experts suggest certain changes that could result in a higher footfall in modern shopping centres. “I have noticed that customers are more and more frequently turning away from what developers currently offer: closed, compact and crowded places. Centres are being modernised, but this mainly involves a change in the shape of the building. There is a lack of progressive thinking when it comes to opening it to the people and the city – a movement that is evident in the United States at the moment. Few developers are analysing how the functions of the shopping centre should change in order to retain the turnover of people. Of course, a high footfall in itself does not guarantee high revenue, but it certainly makes it more probable. People need social interaction, socialising, meetings, being with one another, spending free time in an interesting way without a sense of wasting it. So far shopping centres offer very few of such possibilities,” admits Grzegorz Makowski. Perhaps this is connected with the fact that the retail machine, i.e. the mall, has to make money on the hard product offer. Only a visible and painful emptying of developers’ wallets could be an impulse for livelier activities. “However, instead of ending up in such an extreme situation and losing their grip on the market, they could think about investing in new formats,” stresses Grzegorz Makowski. So what should they do? The sociologist points to the United States, where the retail market is governed by similar rules and the mentality of American consumers is similar to that of the Poles. We cannot of course talk about simply copying these exact mechanisms. However, some points of contact can be identified. “I would recommend viewing shopping centres as public space. If we look at what is happening on the retail market in the United States right now, we can see that shopping centres are transforming from closed spaces to open public space with a large proportion of lifestyle sections. There are shopping districts and streets. These are something between a park and a market square. Malls should change their proportions a little. They should be more of a street, an arcade, than designed purely for shopping,” replies Grzegorz Makowski. The developer of Sukcesja agrees with him. “We are creating Sukcesja as a model centre of the future. Therefore it will be a very friendly area, with a lot of daylight, designed intuitively, without narrow corridors – and opened up. The quality of customer service will also play an important role in the new type of mall,” insists Krzysztof Apostolidis. Public private partnerships could be of some help in this case, as this approach combines commerce with other social functions. For example, in the United States a lot of so-called cultural centres are being opened, facilities that have been established by municipalities with functions resembling the Copernicus Science Centre in Warsaw – but on a much smaller scale. These are designed for families with children and teach practical skills: how to shop, how to build a house, etc. There are shops, cafés, bookshops, a museum, libraries and often also a park located around the centre. “This is precisely the direction of development we should be following. We will soon move the majority of our shopping to the internet because we have no time and we do not want to waste it. We will return to the origins of shopping. This is not an unrealistic vision,” predicts Grzegorz Makowski. However, Rafał Pruba is sceptical. “Post offices and local authority departments are being opened in many shopping centres and so the space has also started to take on practical functions. However, I would be cautious about extending the centre’s operations into more and more fields. Retail trade is the core of a good mall, so developers should not be dealing with everything and creating multifunctional ‘combos’, distracting people’s attention from the heart of the matter,” he comments.

Turning drawbacks into advantages

Another challenge is the growth in internet shopping. This method of consumption is gaining increasing numbers of enthusiasts as the e-commerce market in Poland goes from strength to strength. “We estimate that app. 20–30 pct of shopping will eventually be done via the internet,” claims Krzysztof Apostolidis. In his opinion developers should be prepared for this because the changes will result in reductions to the area leased in shopping centres by tenants, particularly in the electronic goods segments. This will lead to the opening of more showrooms in malls. Krzysztof Apostolidis estimates that the growing share of e-commerce should not viewed negatively, though. “The situation could be turned into a success by developers. Traditional and virtual channels should merge in order to fully exploit their potential. This is why some tenants which have only operated on the internet so far are planning (or have already done so) to open physical outlets. Thus omni-channel sales techniques are in fact an opportunity for modern malls,” remarks the head of Fabryka Biznesu. Shopping centre developers should not take fright at the emerging technology, but instead harness it for their own purposes. “We have to observe the development of e-commerce and react effectively to the changes it will generate. One of the ways is to bring the latest technological developments under the roofs of shopping centres. In our German projects we are testing out modern methods such as ordering goods online and collecting them in the centre, smartphone applications which inform customers about the offer, and discounts in individual shops,” explains Rafał Pruba. ν

A danger – but also new possibilities

Wojciech Piotrowicz, PhD, Oxford Institute of Retail Management, University of Oxford

The internet is inevitably having an impact on the retail trade. And as is the case in any technological revolution, there are winners and losers: those who have been able to adjust or find a market niche, and those who have just faded into obsolescence. Thus technology should not be exclusively treated as a danger, but also as a source of new opportunities (as can be seen in the cases of Amazon and Allegro). Nevertheless, a 2013 study* in the UK clearly revealed the kind of shops that were the most under threat from the new technology. The largest falls in sales were for goods that can be sold in digital form, such as music, press, films and books (-13 pct). Clothes stores, including women’s clothing, were another category and falling sales are occurring in both chain outlets (-13 pct) and independent stores (-6 pct). On the other hand, we can see that the discount store market, which includes Lidl and Aldi, has expanded in spite of the growth of electronic retail. Another trend is for the replacement of shops with service outlets as well as a growth in the number of convenience stores, both independent ones (+17 pct) and chains (+8 pct). To determine the important issues when assessing the impact of technology on retail, we carried out a study** of the omni-channel retailing concept, which focuses on the customer and managing relations with customers regardless of the sales channel – because in the era of mobile devices the division into online and traditional shop has become blurred. However, this requires a change in the model of operations as well as – in many cases – the company’s structure. One of the options is a showroom – in such a place we can view and try things out while the delivery takes place from the warehouse to the customer. Another option is encouraging the customer to visit the shop through the ‘click and collect’ system or accepting returns. This provides the option of contact with the customer and additional sales in the traditional shop. An interesting approach involves ‘price matching’, where a traditional store guarantees that their prices equal online prices and undertakes to pay back the difference in price if any. Another way of extending the product range in a traditional shop is to install virtual kiosks that enable customers to view and order goods that are unavailable due to limited space. As it can be seen with all these options, there is no danger of traditional shops disappearing, although in order to survive some will have to change and respond to the development not only of the internet, mobile technology and social media, but also to the changing needs and expectations of consumers.

* LDC/OXIRM (2013), The State of UK Retail Places, June 2013 report

** Piotrowicz, Wojciech and Cuthbertson, Richard: “Introduction to the Special Issue Information Technology in Retail: Toward Omnichannel Retailing.” International Journal of Electronic Commerce, 18.4 (2014): 5–16.