Switching between channels

The growth of e-commerce has recently been sputtering, whereas traditional retailers have been enjoying record footfall and turnovers. But it turns out that the fates of these two sales channels are more intertwined than it seems at first glance

The irresistible rise of e-commerce already seems like an age-old, never-ending, story. Sales through this channel are projected to grow to around USD 7.5 tln globally by 2026 and to USD 25 bln in Poland alone. As everyone knows, during the Covid-19 lockdown, e-commerce soared largely because it was the only form of retail still accessible.

Michał Masztakowski, the head of retail at Cushman & Wakefield in Poland, puts it this way: “Shoppers never abandoned traditional retail and shopping centres. It was the pandemic that made it impossible for us to do our shopping in the way we were previously accustomed to. Every time the lockdowns were relaxed, it showed us how much we valued the experience of visiting a physical store – and this is a trend that we can still see today when looking at the footfall for retail parks and shopping centres. According to our data, the footfall for a single retail centre of either format rose on average by 463,000 shoppers in July and by as many as 478,000 in August. This amounts to growth of 4.5 pct and 6.3 pct respectively compared to last year.”

But now, following the massive boost to online commerce, internet sales appear to be slacking. According to a report by McKinsey, Polish online shopping has fallen by 8 pp over 2023 as compared to 2022. “In previous years, the e-commerce market in Poland was characterised by a massive rate of growth, largely as a result of the pandemic and the restrictions to brick-and-mortar trade. But from the start we warned against over-optimism, pointing out that e-commerce would return to levels similar to those before the growth caused by the epidemic. The 2022–2023 period has been a time of coping with soaring inflation, weakening consumer demand, as well as the consequences of the Russian invasion of Ukraine and rising tensions in the international arena. All of these factors mean that we still cannot talk about the absolute dominance of online retail, but in Poland we are still enjoying significant growth and there is huge potential for further growth,” insists Damian Kołata, a partner, head of the industrial and logistics agency in Poland and head of e-commerce for the CEE region at Cushman & Wakefield.

You’ve never had it so good

Nonetheless, just as internet sales began to falter, traditional brick-and-mortar retail started to soar. Paul Kuśmierz, the CEO of Master Management Group, goes so far as to assert that: “In our centres at least, we have had record footfall and record turnovers that have continued through this year. 2023 will be better than 2019 for our centres, which for many in the business was a record year.” He also points out that: “After the pandemic, people were eager to come back – and not only to our centres, but others across Poland. And they came back with a vengeance.” According to the Polish Association of Shopping Centres (PRCH), this return to traditional shopping was hardly unexpected. “The return of customers to their former shopping habits came as no surprise for the sector. We expected that consumers would want to meet up, spend time and make purchases in shopping centres again. The only thing that turned out better than our expectations was the speed and universality of this phenomenon. PRCH’s data show that in H1 2023 footfall was 7 pct higher than in 2022, when the level was already comparable to before the pandemic. This means that those predictions about the demise of the shopping centre over 2020–2021 have proven to be wildly exaggerated,” argues Krzysztof Poznański, the managing director of the PRCH.

Taking a proactive approach

It needs to be stressed that this massive return of consumers to shopping centres has partly been due to the retail sector actively going out of its way to re-engage with them. “Many owners began thinking about how we could change our centres, how we could draw people back in, what kind of marketing events we were going to do – and this was different for each centre. No one sat on their hands. People came back because they missed this experience, but we had to ensure that they kept coming back,” explains Paul Kuśmierz of MMG.

When it comes to what retailers have done to win back shoppers, Michał Masztakowski of C&W informs us that: “Retailers have been keeping up to date with changing shopping trends and the expectations of their customers, and this has resulted in changes to what they offer. Lately, a lot has been said about frictionless commerce, which is about introducing practices that eliminate the bottlenecks in the shopping process. One concrete example would be the trend for self-service checkouts, which can now be found not only at groceries but also in fashion and electronics stores. Another would be the unstaffed points to pick up online orders that can be found in-store. All of this demonstrates that retail is following the spirit of the times and retailers are looking for ways to improve their customers’ shopping experience and, as a result, their own conversion rates. For this reason, many chains that have previously specialised in traditional retail are also becoming internet sales platforms that go far beyond what their core businesses have offered up to now.”

A war of convenience

This is a view shared by Maciej Podwojski, the head of sales for the CEE region at Primark, a fashion chain that primarily concentrates on its brick-and-mortar stores. “For us as clothing retailers, brick-and-mortar stores are the ideal place to learn about consumers’ expectations and changing habits. This allows us to respond to their needs on an ongoing basis and introduce further conveniences. The self-service checkouts and free wifi that we are gradually introducing in our newly opened Primark stores in selected markets are designed to not only make shopping easier, but also much more enjoyable. Customers expect shopping to provide them with additional entertainment that fits their diverse needs and encourages them to visit regularly with their families and friends,” he explains, and then goes on to reveal that such self-service checkouts have already been introduced in Wrocław and Łódź.

The grocery segment perhaps represents the one area that e-commerce has thus far had the least impact on. But the director of one major Polish online grocer we spoke to remains upbeat about the prospects for this and is expecting the company to grow by around 15 pct this year. He believes there are many reasons to believe in the continuing growth of online grocery sales: online grocery shopping is convenient and time-saving, while online grocery retailers often offer comparable product prices to traditional grocery stores as well as free delivery or vouchers that allow customers to save money. He also points out that online grocery retailers offer a broader selection of products than traditional grocery stores.

With its in-store sales policy, Primark stands in stark contrast to this. “One of Primark’s key strengths is our in-store experience. Shoppers are encouraged to look closely at products and try on items in comfortable fitting rooms. Unlike online shopping, this hands-on experience enables customers to make considered decisions about their purchases. Additionally, with no delivery delays, they can enjoy their newly acquired goods immediately after purchase, enhancing their overall satisfaction,” points out Maciej Podwojski. The clothing chain’s focus on retailing through its brick-and-mortar stores, however, does not mean that it has completely given up on the internet. “One of our key digital initiatives has been the launch of our new website across all of our 16 markets. This serves as a crucial link between online and offline shopping by allowing shoppers to conveniently check the stock availability in their nearest store. By enabling customers to check this beforehand, we’re able to meet their needs better, thereby fostering a positive shopping experience. Additionally, Primark has introduced such innovative services as click & collect, which has been trialled in the UK. This enables people to browse and reserve products online, providing the convenience of online shopping coupled with the instant gratification of collecting purchases in-store. This approach not only attracts more customers to brick-and-mortar stores but can also improve in-store sales as a result,” explains the Primark executive.

If they come, they will buy

According to Paul Kuśmierz, click & collect serves as a prime example of how omnichannel strategies have changed since the concept was first conceived. “Tenants have also worked very hard to roll out their own click & collect services to get people back into their stores, because what they have discovered is that if they focus entirely on internet sales, they start to lose in-store trade, and so they have refocused on giving their stores the latest layouts, and with such services as buy online, collect and try on, they have been able to induce people to come into their stores rather than have everything delivered. Once you get them in the store, they always buy something else,” explains MMG’s CEO. Rather than looking to maximise online sales, retailers are re-gearing their omnichannel strategies to bring customers into their stores and in the process are having to work more closely with the owners and managers of shopping centres. “When you buy a pair of trousers that are too big and send them back, well, there are costs involved. If you can get shoppers to come to the store with click & collect, try them on right there, and then they come back, then it makes a big difference,” adds Paul Kuśmierz. This is a point echoed by Damian Kołata of C&W: “Studies confirm that up to 71 pct of consumers who return goods to brick-and-mortar stores then make further purchases, so providing them with omnichannel services is incredibly profitable.” Many shopping centres now even include special parking areas for click & collect customers. But such services are not without their issues. Owners continue to argue that they are entitled to a share of such revenue streams because their shopping centres are being used as pick-up points, while retailers insist that these sales were made online. Such issues are likely to remain a bone of contention between shopping centre owners and tenants and could possibly never be fully resolved. Paul Kuśmierz goes so far as to argue that online retail can never fully replace physical sales. “Not one tenant has ever come up to me and said, ‘Look. Paul, we’re going to have to close because we are selling so much on the internet that we don’t need to have a presence in your centre’,” he stresses.

Despite the confidence of traditional retailers, e-commerce is still set to grow. “The e-commerce market in Poland is still in a stage of growth. Its share of the retail market is somewhere between 8.9 pct, according to Statistics Poland’s September 2023 data, and 13 pct, according to a PwC study – and could even be as high as 20 pct, if PMR’s data is to be believed. Even if we factor in the highest of these figures, we are still lagging far behind the UK, the Netherlands, France and Germany, where for many years e-commerce has accounted for a two-figure percentage share of the market,” points out Damian Kołata of Cushman & Wakefield.

Everyone’s a winner

It seems reasonable to assume that this future growth will also come at the expense of traditional retail, but brick-and-mortar retailers don’t seem to see it that way. “The research and studies available show that offline and online shopping both complement and drive each other. If a given brand has brick-and-mortar stores, it is perceived in a better light by its customers and its online turnover also increases. Customer perception is key, since consumers value the attractiveness of both sales channels and want to have access to both of them for differing reasons. This can clearly be seen in ‘The Rise of the Gen Z Consumer’ study published in 2023 by ICSC in the US. It examined the shopping behaviour and the needs of Generation Z ‘digital nomads’. It turns out that virtually all of them (97 pct) visit shopping centres as well as online stores,” points out Krzysztof Poznański of the PRCH. However, Paul Kuśmierz of MMG is of a different view: “I don’t think this represents direct competition. If sales can grow on the internet forever, why can’t they also grow in shops? All the shopping centre tenants that we speak to are looking to open in new locations. They still want to have a physical presence and so they are not switching to a purely online business.” Damian Kołata believes that the only feasible approach for retailers now is a mixed omnichannel strategy. “According to Deloitte’s ‘The Global Powers of Retailing. Transformative Change, Reinvigorate Commerce’ report, in 2018 up to 56 cents in every dollar spent in traditional stores resulted from online contact with the customer. Three years earlier, the same figure was only 36 cents, so the trend is growing incredibly rapidly. Furthermore, those who are active across different channels spend twice as much as those who only shop in brick-and-mortar stores. The numbers speak for themselves, as if they are saying that retailers have to comprehensively plan how they operate and work with every possible sales channel regardless of whether the customer completes the purchase offline or online.”