Retail in the new reality

Both tenants and landlords are now striving to find the right approach to overcome their current challenges. But to survive in the new reality, collaboration and partnership between both parties are going to be needed.

Post-pandemic consumer

A Cushman & Wakefield survey carried out in June 2021 confirmed that shoppers have no intention of turning their backs on brick-and-mortar shopping in retail parks and shopping centres; however, their preferences have changed to some extent. Around 50–60 pct of those surveyed stated that despite the pandemic the frequency of their shopping trips will remain the same as it always had.

For consumers, F&B outlets – such as cafés, ice-cream and cake parlours and restaurants – form a key element of the retail experience, in addition to the shopping itself. Due to the pandemic, the frequency of their visits to such centres has fallen by just around 3–4 pp. Cinemas are also high on their list of priorities, whereas working zones and fitness clubs in shopping centres are consumers’ least popular features.

One major motivation for visiting shopping centres and retail parks for those surveyed turned out to be the opportunity to touch, feel and try on a product before making a purchase. Shoppers are also attracted by promotions and price bargains.

During their first visits to shopping centres after their reopening, shoppers noticed that prices had risen considerably (according to 55 pct of those surveyed) and that some stores they knew and regularly visited had disappeared from the shopping centres altogether (26 pct). As many as 37 pct are still uncertain about the impact of these changes on their preferences. This group of shoppers has the highest propensity for shifting to online shopping from any negative experience in brick-and-mortar stores.

“The research confirmed that providing customers with a sense of personal safety and operating under strict hygiene protocols were among the most important factors for retail during the pandemic. Before this, the online retail penetration rate (the share of total retail sales) stood at around 5–6 pct in Poland. Due to the successive retail restrictions and the many weeks of blanket bans on brick-and-mortar retailing, Poland saw its online retail penetration rate reach all-time highs of 11.9 pct in April 2020 and 11.4 pct in November 2020. However, as the pandemic restrictions were eased, consumers returned to physical stores. More than half of consumers admitted that they shopped online more frequently when the restrictions were in force,” reveals Małgorzata Dziubińska, an associate director in the consulting and research department at Cushman & Wakefield Poland.

From the tenants’ perspective

“There is light at the end of the tunnel, since consumers have been returning to shopping centres. Retail tenants are now looking to achieve pre-pandemic levels of sales. 85 pct of them were hit hard by the pandemic, which most often resulted in lower retail sales, redundancies, a reduction in the number of stores and difficulties due to supply chain disruptions. As many as 53 pct of the tenants surveyed admitted that they have had to close some stores permanently due to the pandemic or for other reasons. A vast majority of the stores closed (81 pct) were in shopping centres. During the lockdown restrictions, 73 pct of tenants turned to online retailing, 11 pct relied on click & collect services, and 9 pct made sales through social media,” comments Beata Kokeli, a partner and the head of the retail agency at Cushman & Wakefield Poland.

“Despite all the uncertainty on the market, as many as 92 pct of respondents intend to carry on with their expansion plans. All of these retail tenants remain firmly committed to bricks and mortar, but 51 pct have also decided to build or strengthen their online presence,” says Anna Oberc, an associate in the retail agency at Cushman & Wakefield Poland.

Retail landlords

The interference of lawmakers in the relationships between tenants and landlords has done little to resolve any of their problems, rather, it has driven an unnecessary wedge between them. Despite the chaos and confusion brought on by the successive lockdowns and restrictions, both parties have begun to discuss possible solutions irrespective of the government’s Anti-Crisis Shield and have agreed annexes with reduced rental rates in close to three-quarters of cases. This shows that there is no need for any external interference in a system that would appear to be self-regulatory. Contrary to what was previously thought, landlords in the main are not focused on fighting the system. More than 55 pct of respondents (in terms of gla) say that they will not be taking any legal action against the government as this would go against their internal policies (37 pct). On the other hand, the owners of 30 pct of those surveyed (in terms of gla) are already planning or are expressing an interest in taking part in a class action.

The analysis of retail footfall and sales has revealed, importantly, that conversion rates have increased during the pandemic. The rate was higher than before the pandemic for 78 pct of respondents (in terms of gla) or remained largely unchanged for 18 pct.

“In the survey, 21 pct of retail landlords in terms of gla saw retail sales for May, June and July 2021 hold firm or increase compared to 2019. Another 21 pct reported a decrease in sales of up to 10 pct, while close to 47 pct recorded a drop of between 11 pct and 20 pct. These levels of decline varied mainly due to the location and retail format. Our studies have shown that convenience shopping centres and retail parks where retail dominates have been performing a lot better. The hardest hit have been those in tourist or business destinations and large university cities. The same holds true for shopping centres with a strong leisure and F&B component. Those serving a local catchment have, however, emerged relatively unscathed. Another segment that has pulled through the pandemic quite well has been outlet centres. The owners of close to 150,000 sqm gla state that their average footfall levels have been down by no more than 20 pct compared to 2019, with a similar decline in retail sales. Each retail centre reported an increase in conversion rates,” explains Paulina Bauer, the head of retail asset services at Cushman & Wakefield Poland.

Looking ahead, landlords will have to focus on additional customer amenities, such as loyalty programmes, apps for navigating inside buildings and car parks, as well as convenience solutions. Spending on digital channels will also rise. Tenants, on the other hand, should plan to use the months ahead to align their retail formats, store sizes and general approach towards driving sales. Customers relying on omnichannel to fulfil their requirements will continue to visit shopping centres but will tend to make ‘needs-based’ shopping trips. Cushman & Wakefield

About C&W

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. It is among the largest real estate services firms with approximately 50,000 employees in 400 offices and 60 countries. In 2020, it generated revenue of USD 7.8 bln from its core services of property, facilities and project management, leasing, capital markets, valuation and other services.