What’s in store?

Anna Pakulniewicz, ‘Eurobuild CEE’: Is having a core location still such an important issue from the investment perspective?

Agata Sekuła, head of CEE retail investment, JLL: Location continues to be one of the most important fundamentals of any commercial real estate. In the retail sector, the understanding of location in all its demographic aspects today and in the future determines the function and positioning of any asset – be it a shopping centre, a retail park, an outlet or a convenience centre. The key to success is to invest in retail products tailored to the needs, spending power and aspirations of its catchment. Given the rapid changes in the customers’ habits and expectations, the ability of owners and managers to foresee such changes and successfully adjust to them will be crucial. Retail is a sector that hates stagnation and standing still means taking big steps backwards.

Agata Sekuła, head of CEE retail investment, JLL

What can we now expect from what is becoming a saturated market? Is it still a sector that can accommodate larger schemes or only boutique projects?

Anna Wysocka, head of the retail agency, JLL: Over the last three years developers, have still been active in major cities building large schemes such as the already opened Posnania, Galeria Północna, Wroclavia, Serenada and Forum Gdańsk, and Libero and Młociny, which are still under construction. However, we are seeing that even the major markets are maturing and it is more challenging now to develop large shopping centres there. This is due to the density, spending, competitive situation or just finding the right plot to meet all the requirements in terms of the catchment area, accessibility or zoning. What we, however, are seeing is greater activity from the developers’ side in developing mixed-use projects (e.g. EC Powiśle, Monopolis) or convenience centres and small strip malls as an alternative to large malls.

How has e-commerce impacted traditional retail?

Anna Wysocka: If we look into the future of how online sales will affect traditional retail, we have to remember that it’s not enough just to be online. You have to be everywhere. And this brings us to one of the market’s current buzzwords: omnichannel. Most brands that launch online sales also have traditional shops. This is always a race against time – can I get online before my competitors? If not, then I could lose out in terms of market share. Conversely, online brands and even platforms like Amazon are now opening brick-and-mortar stores. This universal availability is important, but brands also need to remember that apart from providing additional ways to purchase a product, they also need to ‘go the extra mile’. There are many examples of traditional retail concepts being enhanced with additional elements that have resulted in the rediscovery of a brand, and increasing numbers of customers who spend more time in the store. Because, apart from buying a product they can, for example, play a game in the shop or sit in the café or restaurant that has been opened on its premises. This is now being seen across the entire market – brands adding more functions and amenities to their stores. This is especially the case when it comes to how consumers can try out products. For example, John Lewis stores in the UK allow customers to eat off the plates they sell. Some shops provide coworking space. For consumers this is not actually directly related to their purchases, but it can help to raise a brand’s profile in their minds, making it more likely to be chosen later when seen online or in other shops. It is not only the product that counts, but the presence of the brand in a consumer’s life and consciousness as well. So it needs to exist across all channels, including social media.

Agata Sekuła: When you look at ‘millennials’ – the generation that is playing an increasingly important role as consumers due to the growth of their disposable incomes – their shopping behaviour, which is significantly different to previous generations, should be carefully analysed and reflected in the retail offer. Younger generations no longer regard owning then pairs of jeans or shoes as something cool. In a survey carried out in the UK, young people were asked: what would you do if you were given an extra GBP 100 to spend? Over 70 pct of the respondents answered that they would rather go to a trendy new restaurant than buy anything durable. There are dozens of ideas on how to give the customer a more exciting experience. New ideas are often tested out first in the UK or Scandinavia; however, in Warsaw we have just witnessed the opening of Ikeaʼs new pioneering concept in the Blue City shopping centre. The sky is the limit for the new ideas that retailers are exploring to retain customers, attract new ones and increase their dwell time in their shops. For instance, one of the supermarket concepts has space specially designed for children to play “shop” while their parents sit in the café, sip coffee, talk to their friends and order goods on tablets, which they can pick up immediately or have delivered directly to their homes. This allows children to spend some quality time playing and learning in real life. Another concept, developed by Leroy Merlin, is to provide various craft workshops. As Anna has already mentioned, many other retailers offer their customers products to test by creating a natural environment for their use in real life. But getting back to online sales, everybody expected that the main advantage would essentially be increased sales volumes and higher cost efficiency from the retailers’ perspective. However, the issue of returned goods might have been underestimated. This is the tricky side of any online shopping enterprise. Customers have a lot of time to return items to the store, resulting in goods returning to the shops well after a new collection has already been launched. This is a major problem that online retailers have to find a solution to. Some brands are looking for new ways of dealing with this issue. Such as Esprit, which has been encouraging people to return unwanted items directly to shops by refunding the customer in cash. Research shows that 80 pct of these refunds are then spent in the same shop. Another issue that e-commerce has to face is unlimited ordering, when customers are tempted to make excessive orders, the vast majority of which are destined to be returned. Another important topic is to define sales that are happening in the physical store or outside it, e.g. should orders made online but collected at shops qualify as sales happening in a particular shopping centre or not? And should they form part of the turnovers generated in such a shopping centre for the calculation of turnover rent? Developers bear all the costs of creating shopping centres (most often using external bank financing that needs to be serviced) and in return occupiers should pay fair rent for the space that they use in such centres. The sector has yet to find the right approach to this issue.

Anna Wysocka: Both sides – including the tenants – are having to wrestle with this issue. An online presence is very important, but at the same time physical stores are also key to the process. Many fashion brands are actually increasing their store size as opposed to the downsizing that was expected when online sales first took off. Inditex, H&M and LPP are all expanding their stores. This shows that online sales and their physical counterparts not only can but should coexist. So what went wrong with all the predictions that shops would have to become smaller because of the growth in online sales?

Agata Sekuła: Some people in the market believed that on-line shopping would become the leading channel, bu this is not going to happen as customers want to have contact with the products they are considering buying, they need to be presented with a wide offer to choose from. Physical stores, even if in some cases those that have taken on the function of showrooms, need to display the widest range of products on sale to inform customers that certain goods or varieties of them are available for purchase.

Anna Wysocka: In all sectors, actually, customers expect that by entering a physical shop they can sample the same products that are available online. However, if the range on display is much smaller, the customer could be disappointed. Such brick-and-mortar stores can then become showrooms where the customer can see and touch items such as clothes and then decide to buy them in-store or online. As we have seen, such an approach supports overall turnovers.

Agata Sekuła: Some people still treat and will continue to treat shopping as a way of spending their free time, while others will prefer to order online. There are people who have endless fun trying clothes on, while others simply hate that and embrace the virtual changing room idea as huge incentive for purchases. The beauty of retail nowadays is the freedom of choice offered to customers.

What will retail be like in a few years’ time?

Agata Sekuła: As mentioned earlier, in retail, if you’re standing still, you are going backwards quite fast, thus we will be seeing many changes aimed at increasing the attractiveness of the shopping environment for customers. Clearly lifestyle concepts and food & beverages will become increasingly important.

Anna Wysocka: As will entertainment concepts, science labs and leisure, all of which will contribute to creating the consumer experience in shopping centres.

Agata Sekuła: And children’s concepts, not only for small children, but for teens and other youngsters as well. Everything to allow parents to give their children something else to do apart from looking at their smartphones or watching TV. These could include educational concepts, such as Kidzania in Westfield in London. ν