Change is the only constant

Aneta Cichla, ‘Eurobuild CEE’: Six months have elapsed since the introduction of the law restricting trade on Sundays. How has this change impacted the shopping centre market in Poland?

Radosław Knap, managing director, Polish Council of Shopping Centres: Considering the footfall and turnover data submitted to us by shopping centres, it can be concluded that these figures have been decreasing. Information on the turn-over obtained from 100 shopping centres shows that the average sales index per sqm in January and February 2018, just before the introduction of the ban, grew faster than in the same periods of 2017 and 2016. In January this year, the turnover was 8 pct higher and in February it was 5 pct above the figure for a year earlier. In March, the first month that the new law was in force, the turnover fell to plus 1.4 pct, while April and May this year were marked by app. 4 pct falls in the figures compared to 2017. It was similar when it came to the footfall. In January this grew compared to the same month of 2017 and then slowly reduced in February. And then in March there was a 2 pct decrease, in April an 8 pct decrease and in May a 6 pct reduction, according to the data from 73 shopping centres. Based on conversations with market players, it became clear that the decreases in these statistics had been expected by the sector. However, its conversion, how the reduction in footfall translates into sales, is of key importance.

Przemysław Dwojak, senior director, GfK: It’s difficult for me to generalise about how consumers have reacted to the ban on Sunday trading and how their shopping habits have changed. There are a wide variety of shopping centres and there are different consumer segments visiting these centres. Therefore, customers have various shopping and stay intentions during visits. Those who come for fashion shopping differ from those who shop in the hypermarket, arrange to meet friends or go to the cinema. Our research shows that about 70–90 pct of visits to shopping centres are planned, which means that having taken into account retail-free Sundays, consumers have moved part of their shopping to other days of the week. And such changes in footfall have also been noted by the operators of the
centres. Naturally, not every plan can be transferred to other days of the week, so the negative effects of the lack of Sunday footfall are being felt by restaurateurs or retailers that sell impulse products, such as kiosks. The potential drop in footfall can certainly not be explained by the ban on Sunday trading, because there are a number of other factors that matter. First of all, there is the high saturation of shopping centres, the competition between chains as well as changing habits and consumer behaviour. The data indicate that this is a good time for e-commerce players, but again, this is not necessarily the direct result of the Sunday
ban, but rather of changing trends in shopping in a number of categories.

How are consumers themselves adapting to the shopping ban?

Radosław Knap: The research conducted on our behalf by SW Research shows that the respondents knew what the trade ban was about but they had difficulties with knowing on exactly which days the ban was in force. Arguments for the introduction of the restriction include the interests of retail sector employees (Sundays off) and more time spent with their families. The study shows that for almost 70 pct of the respondents, the prohibition of Sunday trade did not affect the amount of time they spent with their family. The communication of the trade restrictions for some Sundays has been very difficult. Consumers often don’t know exactly which Sundays it applies to and therefore on which days not to visit the mall. Education in this area is difficult. Buildings with integrated gastronomy and entertainment sections have been performing better. However, it is necessary to devise new communication models when it comes to gastronomy and entertainment that’s scattered throughout the centre, so that the customer knows exactly how it operates on non-trading Sundays.

Przemysław Dwojak: We also have to bear in mind that in Poland shopping centres, or rather the retail chains that operate in them, are responsible for around 20–30 pct of the retail turnover in general. This means that the majority of shopping in Poland takes place outside the centres. In my opinion, consumers are understanding the retail ban literally – you can’t go shopping on the Sundays covered by it. Some are confused because they can’t remember which ones are the non-retail Sundays. Retail chains have effectively been reminding them about this in their marketing campaigns, redirecting traffic to other days of the week, such as Friday and Saturday. This has been particularly evident in the FMCG sector, discount stores, supermarkets and hypermarkets. But shopping centres are now finding it more difficult to influence consumer behaviour, since a visit to the shopping centre is more than just buying food for the household. For the customer, a closed shopping centre makes changes in their planning necessary as well as in their habits in the long run.

Bertrand Jasiński, CEO, Sale Zabaw Fikołki: Tenants will also have to change their approach and come up with initiatives addressed to customers. Education and communication activities will be important as people become aware of the trade ban and understand it as the total closure of shopping centres.

What do tenants and landlords feel about the reduction of trade on Sundays?

Paweł Trojan, CEO, Oh Kino: Cinemas are a specific type of tenant. On the one hand, cinema visits are planned as a leisure time activity, but on the other, they can also be spontaneous. It is very good that we are having this discussion because it is so multi-faceted, mainly due to the new phenomenon of having to adapt consumers to the new conditions of retail operations. This adaptation and the resulting changes will take some time. If I was to answer the question of whether we can see any difference in consumer behaviour between the time of the introduction of the ban and before it came into force, I would give a somewhat paradoxical answer: yes and no. In theory, as a beneficiary of the trade ban due to being able to operate on non-trading Sundays, we should be feeling the positive effects of the statutory changes. However,
this is not happening – or at least the scale of these changes has not been particularly noticeable, although there have been some subtle differences. In a shopping centre that is open as usual, ticket sales are at their highest on Saturday and slightly lower on Friday and Sunday. But on non-shopping Sundays, the ticket sales are the highest on this day. But during the last six months there have been two weekends on which the trend has been reversed. Analysing the situation in Poland, we can see that the cinema market in H1 2018 declined by around 10 pct year-on-year. It is difficult, therefore, to identify the precise reasons for this – the films on release have an impact on it, or sometimes it can be the weather. It’s also become evident that consumers are looking for new ways of spending their free time.

Paweł Nawrot, expansion director, Grupa Gastromall: When it comes to my sector, this discussion has several layers. Gastronomy can not only be found in shopping centres, but also on high streets. In most shopping centres our turnover has fallen, although in many places it has increased, despite the Sunday closures. We have analysed the data and evaluated specific locations. The type and format of the mall as well as its location are important for us. Things are different in centres on the outskirts of cities and those located in the hearts of residential estates, which are significantly better off in this situation. The consumer of gastronomy is willing to go to the restaurant zone in the shopping centre for dinner because they are attracted by the quality and price – we like to go out and eat out more often. Therefore, in some locations, despite the fall in the total turnover, our outlets have not suffered from any lack of custom. First of all, however, we need more time to come up with clear proposals. The autumn-winter period will be important, as it should reveal the main trends to us.

Bertrand Jasiński: Before the limitations of trade on Sunday came into force, we saw it as an opportunity; but after its introduction, we approached the analysis of its impact on our business very carefully. After five months, we had 29 Sundays, of which 12 were shopping days, and 17 non-shopping days. In general terms, there has been a fall in custom and it has been a marked decrease – of 30 pct. Two aspects are important here. We have an influence on one of them, that is, the location; but on the other, the weather – we don’t. When it comes to the location, convenience centres in residential districts are doing better. We have been registering increases in these for some time. However, larger centres, remote from residential estates and that you have to travel out to, have been experiencing decreases ranging from 30 pct to 50 pct. Once again, experience has shown that malls located in city centres, which are deserted on Sundays, are the least frequently visited. But it’s too early to say that out world is collapsing. When it comes to the other factor, the weather, in April, May and June there was only one Sunday with bad weather. So this factor, which ‘pushed’ people outside to spend time outdoors, would seem to be the decisive one in this case.

Bożena Kaczanowska-Tajan, rental and retail building management department team leader, Immofinanz: Our shopping centres have been experiencing increases in footfall and turnover. On retail days, the cinemas, fitness centres and gastronomy in Vivo and Tarasy Zamkowe have been operating without any changes. Things are different in the Stop.Shop retail parks, which have closed completely on the Sundays affected. There has been no increase in the turnover in these and the footfall has remained constant. Looking at our buildings in general, we can see two positive phenomena: window shopping has decreased, which means that more people come to the centre for actual shopping, and that the footfall has increased by a few dozen percent on shopping Sundays. Sunday visits have shifted to Fridays, Saturdays and Mondays. And we were surprised by figures for Wednesdays, as this day has become more popular with consumers than before.

Does what you say mean that the gastronomic and entertainment segments, which have so far been regarded as among the most important areas for improving shopping centres, are no longer able to do this? The introduction of the Sunday trade ban and the statistics we have mentioned point to a decline in these segments.

Bertrand Jasiński: This trend is the result of changes in consumer habits. Shopping centres in Poland functioned as a meeting place for twenty years. But people are now choosing different things to do. So if owners don’t rush up their act, consumers will choose other places with a more interesting range of things to do, and so the standard mall’s function of being a meeting place will be taken by modern food halls like Elektrownia Powiśle, Centrum Praskie Koneser and ArtN in Warsaw. Retail will be secondary and it will be the restaurant and entertainment section that drives the consumer traffic. So entertainment and gastronomy in shopping centres is still the right direction to develop in. However, owners will have to modify the location of these functions inside the centre and the scope and attractiveness of its product range. I still see shopping-free Sundays as an opportunity, but we will have to wait until the winter to draw any real conclusions, as it will only be then that it will have answers to many of the questions.

Radoslaw Knap: This change in behaviour isn’t the direct result of the introduction of the trade ban, although the new law has accelerated this process a little. We’ve been seeing the refurbishment of food courts and restaurant sections in many shopping centres for some time, and not only in Warsaw.

Paweł Nawrot: People don’t want to travel out to a huge mall somewhere to eat something. They will choose a nearby street location rather than a crowded building. As we start to earn more, we value quality more and more and are able to spend more on it. Gastronomy and entertainment themselves will not keep a shopping centre running. Something more is needed. The transformation of high streets that is gradually getting underway should be added here. For example, there are Warsaw city council’s plans for ul. Bracka and ul. Szpitalna – this quarter could be turned into a promenade. Nowy Świat is also being revived. And the city has been preparing retail plans for other districts.

Paweł Trojan: The changes we are seeing in consumer habits and why they are occurring is currently a key topic for tenants and landlords. If we could accurately determine the changes in the structure of society and customers’ expectations regarding the range of products, we would soon not be talking about shopping centres but instead of meeting places, as we should call them for the needs of this discussion. I hope that retail centres will still be an established part of the city, which people will want to come to, especially on rainy days, to enjoy socialising. So what is happening is not a bad thing, on the contrary – we need it.

Radosław Knap: Shopping is not a bad way of spending your free time. I believe that the form of the act and its terms differentiate slightly between the different forms of purchase: gastronomy and entertainment can work if they are well presented, but shopping itself has been prohibited, so we shouldn’t do it.

How much will shopping centres have to change in order not to lose out from all the changes we are talking about? I mean, in terms of restructuring and changing the product range.

Bertrand Jasiński: In the past, the layout of the mall was designed in such a way that the gastronomic concepts were located throughout the entire centre. This was justified at the time, but today it makes no sense on non-retail Sundays. Our playrooms work best in locations where gastronomy and entertainment share a separate space, in contrast to having dispersed premises, far away from related formats – and these will be closed on non-trading Sundays because the customer wouldn’t even be able to find them. Looking at it this way, it’s obvious that shopping centres will continue to change and transform. We will not be able to avoid a certain reshuffling of buildings with the intention of bringing these functions together in one place – so that you can enter this section of the mall independently and not feel the effects of the shopping ban. We manage such a building in Warsaw’s Wilanów district, which has a playroom, a hairdresser, a currency exchange, bars and restaurants, a travel agency and a pharmacy that open on non-trading Sundays. It’s the only place where we have not registered any decreases in revenue. Furthermore, these tenants attract customers for each other.

Bożena Kaczanowska-Tajan: Our centre – Tarasy Zamkowe in Lublin – is another example of what we are talking about. The gastronomy and entertainment sections work together on the first floor and are connected to the roof garden and the viewing terrace. The system favours this group of tenants and we have actually seen increases in their turnover and footfall. Mainly because even on non-trading Sundays people come to our terrace for recreational purposes and then use what the centre has to offer. Our unusual food court, with its well-arranged space, undoubtedly adds to the attractiveness of the centre. And we will continue investing in such an approach. We will also launch educational campaigns to inform customers about the possibility of visiting our food & drink and entertainment offer on trade-free Sundays. From our experience with our Vivo! Centres, we have also come to the conclusion that the concentration of zones is necessary so that customers do not have to walk past darkened shop windows, which certainly brings down the whole shopping experience. Therefore we are thinking about concentrating the gastronomy and entertainment tenants in a single location and facilitating the access to this zone, because there are customers who choose to use the centre purely for this purpose. Furthermore, I can see how F&B tenants themselves are changing, adapting to the new reality – some of them have branched out into deliveries and supplying food, and this has turned out to be a good decision as it generates an increase in turnover.

Paweł Trojan: Such changes will have to take place, but it’s too early to give an unambiguous answer to this question. You still have to try to generate consumer traffic in existing buildings. In our case, we need to take advantage of what the legislator has provided us with. That is all we can say at the moment. We have a very interesting period ahead of us.

Przemysław Dwojak: When the market was not so saturated, most shopping centres were built according to a specific pattern – with a grocery operator, a shopping arcade and possibly a cinema and a small food court. Everything was subordinated to normal shopping. Today, in such a saturated market, we know that such a model does not work in every case. The buildings that manage best are well-profiled in terms of their environment, multifunctional or specialised and, naturally, in good locations. Apart from being shopping temples, malls are to a large extent places for meetings and for spending free time for various consumer segments: families with children, high school pupils, university students, single people, white collar workers, window shoppers, and so on. Many of them only increase the footfall, which does not necessarily translate into turnover. In the long run, however, they are potential customers, which is why these groups should not be underestimated. For a shopping centre to be a marketing product, its target group has to be identified so that this group, feeling that they are in the right place for them, want to spend money in it.

Radosław Knap: This is where the profiling of buildings and their specialisation come into play.

Przemysław Dwojak: Exactly. Profiling targeted at a specific customer group – one that spends or should spend the most money. This is what effective marketing should result in: the repositioning, rebuilding and changing the functionality of building. In a saturated market, we can talk about it being a consumer’s market rather than a mall’s market. And you can see that the focus has been more and more on the customer in such a market.

Is the trade ban having an impact on the tenant-landlord relationship?

Bożena Kaczanowska-Tajan: We have very good relations with our tenants and we take a lot of care of them. Sundays have not affected this. We engage tenants in marketing programmes and try to devise the product range together. However, we have not been seeing any decrease in turnover, so for now we have no plans to change the terms of contracts with our tenants. Remember that the restriction applies also to landlords. There have been no signs of any reductions in revenues and so we are not planning to take such steps.

Paweł Nawrot: It is still too early to talk about it. At least a year must pass before we can identify exactly what has changed. We will probably have to wait for the autumn-winter period to provide answers to many of these questions. We settle our turnover accounts with mall owners on a yearly basis, so we need a reference. If we fall below the projected business plan, we will start such conversations. However, I must repeat: it’s too early for such declarations. What we can do at the moment is improve the quality of what we offer so that customers choose our outlets even on non-trading Sundays.

Bertrand Jasiński: The discussion over rent reductions depends on the particular segment and its performance. If a clothes store has increased its turnover year-on-year, and it does not operate on the Sundays affected by the ban, then it doesn’t have to pay salaries to its employees for these days, so it has only gained from the ban. If, on the other hand, a store is open every Sunday, and at the same time they notice declines in revenue – then we need to take a different
look at the situation. In my opinion, centres will change in two ways. Firstly: locating tenants of a similar kind into the same zone, so that you can take advantage of what they have to offer without wandering through an empty building first. The exceptions to this are cafés, which need to be scattered around the building, and so we shouldn’t expect those located in places remote from the zone operating on non-trading Sunday to open – and this fact will have to be included in the level of rent. The second aspect is the modification of the building’s product range. Centres are trying to make themselves more distinct from others, We have been in discussions about how the space can be arranged in the mall to provide a wide and consistent range of entertainment so that it can become a destination in itself. With this in mind we intend to generate more traffic and custom for the businesses that operate in it.

How likely is the scenario of stores closing in shopping centres even on the Sundays when they are allowed to trade? Have you considered this option?

Paweł Trojan: Of course... not. We have been thinking about the changes that need to be introduced to our cinema model if the entire building is closed. For the moment we have been observing closely what has been happening and drawing our conclusions, and so we will try to react in a way that takes advantage of this opportunity and translate it into actual results.

Paweł Nawrot: I see no reason for closing our outlets in shopping centres that consumers visit despite the trade ban. However, I can’t rule it out in poorly performing locations.

Bertrand Jasiński: If a location is not able to break even in this situation, then I can understand the business reasons for closing it. This is not really an option in our case. I don’t think that shopping centre owners would like to close the entire mall on non-trading Sundays. It’s not in their interest.

Bożena Kaczanowska-Tajan: We certainly have no plans to close entire centres on Sundays. ν

The participants of our roundtable discussion:

Bożena Kaczanowska-Tajan

the head of the rental and retail building management department at Immofinanz. Immofinanz’s retail portfolio currently comprises three Vivo! shopping centres, Tarasy Zamkowe in Lublin and seven Stop Shop retail parks. Bożena has ten years of experience in the commercial real estate sector, including five years on the French market, where she was employed by such companies as La Française AM, DTZ Jean Thouard and Perial Asset Management. Since returning to Poland in 2013, she has worked for Atrium European Real Estate as a business controller and later as an asset manager.

Przemysław Dwojak

the director of customer analytics and sales strategies at Gfk. He manages two sales effectiveness and consumer insights teams dealing with such issues as the assessment of investment potentials, consumer purchasing paths, sales leverage and promotion effectiveness, data integration and segmentation, and projection and trend analysis. As a retail expert, Przemysław has been involved in research for more than 100 shopping centres (commercial due diligence and marketing strategies) and the expansion strategies for several retail chains.

Bertrand Jasiński

the CEO of Sale Zabaw Fikołki. A developer of business start-up projects. He has been carrying out projects in shopping centres for the last 18 years. Bertrand is currently involved in such projects as: Kuźnia Kulturalna, which combines gastronomy with cultural events; Scena Kulturalna, a summer project carried out jointly with Telewizja Polsat on the Polish coast; Museum Store, a chain of twelve stores in museums and science centres; The Beer Store sport pubs; as well as the rapidly expanding entertainment chain Sale Zabaw Fikołki.

Radosław Knap

the general director and a member of the board of the Polish Council of Shopping Centres (PRCH). Radosław has been involved with the organisation since 2009, when he joined it as a development manager for members’ issues and developing pioneering projects related to its knowledge base, such as the PRCH Turnover Index, Footfall Trends and the online Shopping Centre Catalogue. In 2015, he was promoted to the position of general director and member of PRCH’s management board.

Paweł Nawrot

the CEE expansion director at Grupa Gastromall. Paweł was appointed the expansion director for Poland in 2016 and after a year was promoted to the position of expansion director for Central and Eastern Europe.

Paweł Trojan

the CEO of the Oh Kino cinema chain. He has been employed in the cinema sector for many years. Previously he was responsible for the investment and development division of the Multikino chain and other companies belonging to the ITI Group. Paweł also has many years of experience in the organisation and management of investment processes. Now he is developing his own cinema chain: Oh Kino Three cinemas currently operate under the brand, with three more due to open by the end of this year.