Not quite a piece of cake

Some of the latest trends that have a direct effect on Polish shopping centres include a rising interest in entertainment and catering, an increasing share of trade moving online and the consequent focus of retailers on combining various sales channels. Owners and managers of malls are trying to respond to customers’ needs quickly and effectively. One example of this is the Wroclavia shopping centre which was opened in Wrocław in mid-October. Its owner – Unibail-Rodamco – earmarked nearly 20 pct of the centre’s leasable area for entertainment and catering. Other developers with projects under construction claim that the space reserved for entertainment and catering services will be considerably more extensive than in previous projects. Meanwhile existing mall owners are left with modernising and recommercialising their centres to make room for a wider range of tenants from specific segments. Combining various sales channels together in an omni-channel sales approach is also becoming more and more common. “Shopping centres change their approach because customers’ needs change. The basic needs have already been met so now it is time for more sophisticated demands. Besides, a generation that does not know a world without shopping centres is coming up. They consider malls to be places where you not only shop but also spend your free time and meet your friends. Contrary to appearances this is no longer true just of large cities – in smaller towns there is often no alternative to a shopping centre as a place to meet or as an entertainment centre,” claims Agata Czarnecka, an associate director of the consultancy and research department at CBRE.

Trends and reason

Apsys Polska, which is not only a shopping centre manager but also a developer and owner, can clearly see the requirements of consumers. “For sure, we have to provide more leisure, more entertainment and culture, more food and restaurants and all those things that turn a centre into a place to be and not just a place to shop,” says Benoît Charles, the CEO of Apsys Polska. He claims that Apsys Polska, with its knowledge and experience of managing retail facilities, has a detailed understanding of the market. “Such a large portfolio gives us a unique opportunity to gather up data about the market, which is extremely important for us [The company currently has 23 centres under management, – Ed.]. We have a wide range of shopping centres and there are different kinds that we manage. These range from regional malls to convenience shopping centres in secondary cities. This gives us extensive information on the needs of our tenants and customers. And this is the real the value of our portfolio. Having such variety in our portfolio and such a presence across Poland has given Apsys a deep understanding of the market,” he claims. Is entertainment indeed a magnet to attract customers? “This is particularly visible in larger facilities within our portfolio, where the food and entertainment sections are more extensive. Our observations are confirmed by the results of a survey which was carried out at the end of last year by ARC Rynek i Opinia for Immochan Polska. Seven out of ten respondents come to shopping centres mostly to do their shopping. This reason for shopping centre visits is more often cited by people of the MTV generation (74 pct) than millennials (64 pct). While in a shopping centre younger people devote relatively more time to eating and entertainment – a thing that was mentioned by every third person surveyed (33 pct). Out of people aged between 31 and 45 nearly one quarter admitted that they use the restaurant and entertainment facilities in shopping centres,” says Agnieszka Gutowska, the marketing director at Immochan Polska. The president of Apsys Polska is of a similar opinion. “The space we designate for such activities is getting bigger and bigger. This is very challenging, by the way, because it costs a lot and the income from leasing such space is not so high. But it is a must. If we do not do this, because of online retail, we will never manage to attract people into our malls. In Manufaktura during the summer time we organise lots of activities in the ‘rynek’ – the square in front of the building: There’s a volleyball court, we have basketball tournaments, Redbull skimboarding, motocross races, concerts, there’s a real beach, a zip line and in the winter we open an ice rink there. We also have the greatest New Year’s Eve party with concerts, and we organise the final of the Great Orchestra for Christmas Charity event for Łódź'. Also there are climbing walls and the cinema. All of this contributes to the entertainment mix,” says Benoît Charles. The entertainment and catering in the tenant mix needs to be carefully balanced. Entertainment operators do not pay high rents and the revenue they generate per sqm is not impressive. According to a report of PRCH Retail Research Forum, such tenants had a net return of PLN 149 per sqm in H1 2017. “The owner decides on the proportions and it is always subject to local conditions but it is worth asking the question: do we want to have an entertainment centre or a shopping centre? Tenants in entertainment and catering areas usually pay lower rents because they attract customers and increase the footfall of a shopping centre but they generate quite small revenues for the owner for the amount of space they occupy. Concentrating too much on developing the entertainment section in a shopping centre while simultaneously neglecting retail tenants may result in problems with a centre’s profitability,” remarks Robert Napieralski, an asset manager at Knight Frank. Entertainment in a shopping centre often comprises a cinema and a bowling alley but the proportions have been changing, which also needs to be taken into consideration when designing such an area. “In the past the bowling alley was a standard feature that attracted the crowds. Nowadays they are very rarely seen in newly-built shopping centres. Meanwhile the multiplex that is to be opened in the Jupiter centre in Warsaw, which is currently under construction, is to have specially designed screening rooms for film premieres. Another part of the complex will be earmarked exclusively for the organisation of educational and cultural events including for kids,” says Agata Czarnecka. But the entertainment section does not have to exclusively comprise the services of tenants. “What we have noticed is that customers are eager to use the restaurants and relaxation areas available in our shopping centres as well as any available multimedia. Customers are keen to take part in events organised by shopping centres, particularly those addressed to families such as workshops, educational meetings or theatre performances,” says Agnieszka Gutowska. Importantly, events organised within centres also serve as entertainment. “We have to organise events, even small ones, and something like this must take place in our shopping centres almost every day. The place cannot be cold and lifeless – it has to be alive,” claims Benoît Charles. As far as the average monthly turnover is concerned, the catering industry does the best as it can make as much as PLN 1,176 net per sqm. It is not surprising that more and more owners are modernising their restaurant areas and focusing on improving their quality. “We are making our traditional food courts more comfortable and friendly. In Posnania we have added new furniture, sockets, chargers, screens and so on. We have also added a chill-out zone, which has a different kind of atmosphere and is more peaceful, with a piano playing all the time, a wooden floor and nice furniture. We have also created what we call a winter garden, with normal restaurants and waiter service. In the summer the doors can be opened and you can sit outside on the terrace in front of a fountain. There is no way that you could build a shopping centre now with only a food court and no additional space. We have to include additional features to expand the choice for the customer,” says Benoît Charles. The restaurant area opened at the end of October in Silesia City Center is another example of this.

Working both on- and off-line

Shopping centre managers do not talk about online sales and virtual shopping other than in the context of a challenge and an opportunity to strengthen the position of their centres. It’s been known for a long time that the best strategy is to combine the two sales channels. This helps to attract customers into a shopping centre and with the proper marketing, keep them there for longer. “We do not consider online sales as competition to the retail trade in our centres. Brick and mortar boutiques and their online sales complement each other. It is also worth pointing out the social role that shopping centres serve nowadays. It is not only a place to go shopping but also a place to spend your free time together with your friends and family. This aspect of a shopping centre’s operations gives traditional shopping the edge,” says Agnieszka Gutowska. She also claims that the Immochan is trying to support those tenants directly affected by e-commerce with their sales. The changes in centres managed by Immochan are aimed at convincing customers that they will not only find everything they need but that they can also spend their time there in an interesting manner. “A lot of the meetings we organise are intended to integrate centres into the local community and they look at the habits and traditions of a given region,” adds Agnieszka Gutowska. Online shopping will never replace touching a product and face to face contact with someone who is there to guarantee the best possible customer experience.. “People still like to visit stores of course on the condition that they are able to find the right range of products with high service standards. Digital channels do not have to mean a reduction in traditional sales and what is more, properly managed e-commerce supports sales and increases the number of customers that come to brick and mortar stores. The integration of these sales channels is still in its infancy in Poland and it is the domain of the larger chains (at least when compared to other European countries). We have recently conducted a survey which we published in the ‘Omni-channel Polish Style’ report. It turned out that out of 120 brands that have a large number of stores in shopping centres, 12 pct did not have an online presence at the time while others were still only starting to implement a fully integrated sales system that would connect online and offline shopping,” comments Robert Napieralski. Shopping centre owners are now focusing on omnichannel sales. “We firmly believe that offline and online retail will combine. And they are already coming together. Our retailers are doing this already,” says the CEO of Apsys Polska and he provides an example: in Posnania the company offers a collect & try service. Every item ordered online can be collected in a specially designated area in the centre. There, you can try on a given item and purchase it or simply give it back to a concierge who will send it back to the seller. The company is now focusing on customer relations, because that is what determines the success of a centre. “We are really trying to create an experience and a very special relationship with the final customer – which is the same customer for both us and for our retailers.We are doing this. Bringing them in, giving them what they cannot find online: an emotional aspect, an experience. So this is what we should be focusing on,” says Benoît Charles.

Six days of shopping

According to the latest published bill on a proposed ban on Sunday trading retail trade is to be permitted on the second and fourth Sunday of every month as well as on the two Sundays preceding Christmas Day and the Sunday preceding the first day of Easter. The bill which was prepared by the trade union Solidarność has been criticised by many. The Polish Council of Shopping Centres (PRCH) and the Business Center Club (BCC) are among those who openly oppose the proposed limitations on trading. According to a report prepared by PwC for the Polish Council of Shopping Centres, the estimated direct losses in taxes resulting from the introduction of the ban will come to at least PLN 1.8 bln while the decrease in turnover for the retail industry will be around PLN 9.6 bln with 36,000 jobs to be lost. Those opposed to the legislation have proposed a different solution. “In response to the arguments of those who have drafted the bill such as the need to provide retail staff with free Sundays, the Business Centre club and other the lobbying group Social Dialogue Council, have proposed a solution which would guarantee retail staff with two free Sundays per month, which is twice as many as they have now, through appropriate amendments to the Labour Code. What they are proposing is an amendment to art. 151[12] of the Labour Code, which would state: ‘An employee working on Sundays in a retail facility will have a minimum of two Sundays every four weeks free from work.” Such a change would allow retail centres to operate on Sundays, while providing those employed in the sector with free time on Sundays guaranteed by law. Such a change would take into account the intentions of those who drafted the law by providing retail staff with more free time to spend with their families and does not involve the introduction of a restrictive ban. “This is not good news for our business for obvious reasons: it will cause disruption, it will reduce turnover and it will create problems in terms of employment. This measure generates uncertainty for investors who want to enter the Polish market. The labour laws could simply be changed to protect employees and avoid a Sunday ban with all its consequences. We are trying to present our position to the government and support the actions of the Polish Council of Shopping Centres in regard to this issue,” says Benoît Charles. What the final act will be when it comes into law is still not clear. The retail market has to prepare itself. “You could say that shopping centre owners and tenants are in a state of waiting. New proposed regulations come out every now and again, so it is difficult to take concrete action to prepare. However, it can be assumed that the ban on Sunday trade (in whatever form it is introduced) will mostly affect large malls and outlet centres on the outskirts, as these locations see the most footfall at weekends. I believe that smaller centres in city centres where customers also make smaller, everyday purchases, will do better,” claims Agata Czarnecka. Knight Frank also believes that the bill will change the market. “Regardless of the law which will eventually come into force, the ban will certainly make life harder for shopping centre tenants and owners. Large chains will certainly be cautious when opening more stores. At the same time they will be able to balance the decrease in revenue from traditional trade by developing other sales channels. Smaller, local tenants for whom a boutique in a mall is often their only source of income will be more affected by the ban. For the former as well as the latter, the need to close stores will certainly be an argument to lower rent rates when renegotiating lease contracts,” concludes Robert Napieralski.

Michał Pszkit

CEE director of the real estate management department, BNP Paribas Real Estate Poland

Managers must know local communities

Customers’ expectations in smaller towns are very quickly becoming similar to those that are seen in larger centres. This not only means a possibility to increase sales but also the opportunity to reach out to new groups of customers. It is important to look at the micro view, at local shopping habits and current expectations. Those from smaller towns who visit retail parks and shopping centres make spontaneous purchases less frequently than shoppers in large malls, who act more impulsively when faced with an extensive range of famous brands. However, this does not change the fact that retail chain tenants have seen the potential of smaller locations and are becoming more eager to expand in this way.

As well as creating an appropriate range of retail services, it is important for managers these days to make sure that retail parks seem fresh. As a result, such centres require additional skills from their managers such as the ability to identify the expectations of local communities and to adjust the services and products a centre offers accordingly. Such a retail centre needs to fit the character of a given location and both the services and communication must be personalised.