Survival strategies

The global downturn has set in motion a vicious circle. a rising unemployment rate together with decreasing consumer confidence are clearly having a negative impact on retail sales. As statistical offices around Europe keep informing us about declining sales, shopping centres are being forced to re-invent themselves in order to weather the storm

Mladen Petrov

Traffic jams are nothing new for Puławska, one of the busiest streets in Warsaw. This Friday evening, however, a large number of drivers were considering abandoning their cars on the street due to the gridlock. They all seemed to have one destination: the ‘90 pct-off’ Friday night sale just outside the capital. Those who made it to the outlet centre couldn’t have been more grateful for the crisis. As retail sales slump, shopping centres are doing their level best to boost sales. ‘Eurobuild CEE’ has decided to find out from mall managers, retail analysts and marketing executives what the successful survival strategies at the moment are. One shopping centre developer, when asked to participate in the survey, replied that his schemes are so successful he really can’t comment on declining sales in his facilities as he knows nothing about them. We can understand his resort to subterfuge – the topic, after all, is not a pleasant one. But the figures confirm the slowing pace of retail sales across the region. A recent report by Re&Solution International Property Advisers reveals a dramatic drop in retail sales in the Baltic States, as much as by even 50 pct, with weaker retail facilities already faced with vacancy rates of 20-30 pct. Major retailer Inditex’s Q1 profit was 15 pct down. I could go on and on relating the dreadful numbers, so we can hardly pretend that there is nothing to worry about. But what can we do, apart for burying our heads in the sand?

Valeri Rafailov

marketing manager, 
M.O.S. Management, Bulgaria

The crisis is here. 
So what?

In general, it is clear that the unstable market conditions are having a definite impact on citizens’ purchasing activity in Bulgaria. The exact reasons for the diminishing activity cannot easily be pinpointed: on the one side, the decrease in salaries is having an impact, but on the other hand, there are also customers who are afraid to shop. They can afford to do so, but have been influenced by the general panic and fear of an uncertain future. In Sofia, the negative impact of that fear and panic is less visible than in the rest of the country. The reluctance of customers, however, would seem to be a short-lived phenomenon. In this regard, what is happening currently in Bulgaria may be described more like postponed shopping than as a complete freeze. We do believe that customers’ purchasing power remains strong, but it is going to be used sometime in the near future. So far the average number of shoppers is remaining at levels similar to 2008. The same is also true of revenues. In the current conditions, property managers have to be very flexible and be able to respond to every signal indicating changing market trends. For us that means more aggressive marketing, especially for the sales we organize and loyalty schemes, making sure that ourcustomers receive positive messages and avoid panicking. All in all, the steps we are taking to secure a steady level of receipts – extended end-of-season sales and bigger discounts – are having the desired effects.  

M.O.S. Management manages Mall of Sofia and Mall of Plovidiv

Luis Pereira

managing director for the CEE region of Multi Mall Management

Acting locally is the key

The global downturn has resulted in reduced consumer confidence and spending, and has inevitably had an impact on sales. Working closely with the tenants is our absolute priority. What we are trying to achieve as a company is doing “more with less”. How exactly does that work? We have adopted a bottom-up approach that calls for decentralization in the decision-making process. For example, we don’t have a European-wide loyalty programme for our customers, because these schemes don’t work the same way everywhere. But we do run such programmes where they have been successful, in Turkey for example. Every shopping centre is different, as are the solutions to the problem. The challenge here is how to reduce service charges and maintain quality, without damaging the image of the shopping centre. Also, we are closely working with suppliers on possible cost reductions. Naturally, every property manager has been forced to think about savings. There is, however, one area we can’t afford to neglect when cutting costs: the marketing. This is the tool that maintains the appeal of our assets. In this regard we are working with a large number of sponsors to ensure more additional activities for visitors. In terms of performance it is very difficult to draw conclusions for the entire CEE region and Europe. Newly opened centres need a maturation period, so their performances are not representative of the whole market. While the older malls are holding up pretty well, given the circumstances. We are observing a slight positive correction in the consumer confidence index, but we need to remain realistic. The requests coming from our tenants makes this clear – the downturn is not over. Not everyone has the time and the ability to weather the storm. These times call for a lot of creativity. Our tenants are asking for support where reduced rents are certainly not the only immediate solution. We have to find the correct solutions – for our tenant mix, for instance, adding extra space to an existing shop can result in a lower rent per sqm and a higher yield for tenants who can offer a larger range; or on the other hand, by reducing the size of a store we can create space for a new shop. There are always many options.

Multi Mall Management is managing, amongst others, Forum Koszalin, Forum Liberec, Olympia Plzeň and Olympia Olomouc

Mati Pops

commercial director for Citycon’s Baltic operations/director of the Rocca al Mare shopping centre in Tallinn, Estonia

Good time for changes

Due to the current economic situation, in retail sales it is very important that besides having a wide range of good stores we can offer high quality services and guarantee the availability of all products. In addition, we also have to pay attention to the attractive and diverse placement of products and guarantee suitable opening times for our customers. In the Rocca al Mare shopping centre in Tallinn, which is now in its third phase of development, we are following a new concept that is being used in many shopping centres across Europe. Stores in our centres are placed in zones: those selling the same lines of goods are located together. This makes it easy for customers to find the necessary products conveniently and time-sparingly. To maintain a high level of sales we are focusing strongly on active marketing to attract and keep hold of customers with high-quality services, special offers and a wide choice of goods. Today it is very important that we co-operate effectively with all our tenants and work hard to achieve a professional service and satisfied customers.

Marta Burek

retail asset management director of DTZ, Poland

No changes in scope of services

When seen from the viewpoint of a managing company, what we do at a time of crisis differs little from how we behave in more favourable times. We render the same scope of services and use the same tools, although the tasks we face and the goals we have to reach differ. The difference here may be the degree of creativity employed to achieve optimal costs, but much more attention now has to be devoted to doing this, since the economic situation is fluctuating much more rapidly, with many more factors and greater risks to be taken into account. A manager is guided in what he does by annual operational and marketing budgets. Savings are looked for in both areas. In the former, these involve the renegotiation of contracts with services suppliers and even a more efficient consumption of energy; the second area involves identifying alternative channels of advertising and communication with customers. Even so, no single simple rule exists on how a shopping centre should be adapted to changing conditions.

One of a manager’s major tasks is to re-commercialize premises. Usually such a task arises when a contract with a tenant expires, as well as other situations such as when a tenant leaves their premises due to poor sales – although this does not occur so often. This year the failure of certain companies has forced us to lease several premises in one shopping centre at the same time. Although re-commercialization is a normal part of our job, to find tenants for several outlets simultaneously is something of a challenge, especially considering the smaller number of tenants looking to enlarge their chains. (EG)

DTZ is managing 11 Polish shopping centres

Loredana Croicia

marketing and sales director of the Baneasa Shopping City, Bucharest, Romania

Don’t forget about the fun

The economic situation today presents us with many challenges over how to maintain a strong retail business. Baneasa Shopping City’s management decided to invest even more than in the last year in marketing and advertising, using especially innovative events in order to attract customers. We have two examples of this: our Night Shopping Party and Baneasa Drive-In Cinema. Both projects are the first of their kind on the Romanian market: the Night Shopping Party promotes the special stores’ offers keeping the centre open after midnight and giving people the chance to experience nocturnal shopping in a disco atmosphere with concerts, dancers, free cocktails, instant prizes and special promotions by the tenants. The Baneasa Drive-In Cinema provided Romanians with a national debut: the first Digital Drive-In Cinema in the country, where people can enjoy a night out and see a film after doing some shopping. Both concepts brought a great number of people to the centre. The emotional bond, the interaction with our customers, the quality of the services we offer are today the differentiating factor when a potential tenant chooses to spend its time and money in a shopping centre. Our management understood this from the very beginning. The examples above are the result of team work by shopping centre management (marketing, leasing, operational, and technical), the tenants and creative third party companies. One cannot work one without the others, so another key element for Baneasa Shopping City’s management is the close communication with its tenants and business partners. We can only guess what the future holds for the shopping centre’s business based on what our research shows or our own experiences of the retail market, but for sure we are keeping our eyes and ears wide open to act pro-actively when certain signs appear and our policy must be adapted accordingly.

Radu Niculescu

general manager of RED Building Management Services, Romania

Challenging times call for creative management

As Romanian purchasing power is hit by the global financial crisis, we are considering a rebranding strategy for our shopping centres. We intend to make our clientele aware that shopping in malls is not so expensive that only a few people can afford it. Our aim is to develop an integrated and complex entertainment destination for the entire family. So in addition to shopping facilities, we are offering complementary activities, such as a free access ice-skating rink and a recreational area with a barbecue and children’s playground. The message we are sending to customers is that the products we offer are daily essential products that should be considered ‘needs’ not ‘wants’. As catering outlets do not appear to have been that affected by the economic turmoil, our strategy is aimed at sustaining the other retailers. We have already taken some measures such as: cost optimization of service charges, tenant relocation within the shopping centre, and a customized financial offer regarding rents adapted to the current economic situation. In some cases, we have agreed to decrease the fixed rent and increase the percentage rent, in order to show our continuing support for them. We are granting easements such as the fitting out of their premises. Some international brands which have recently entered the market are now looking for further growth. The timing seems to be good, as the rent conditions are now much more favourable. As a developer we are not panicking. Romanians are still spending, and they want to be entertained.  

RED Building Management Services is the developer and the manager of Braila Armonia shopping centre, and has six other centres in the pipeline across Romania

Anna Duchnowska

director of the asset management department of AIB Polonia Property Fund

Keeping an eye on cash flow

Outlets have proved to be a genuine market success. The statistics for our sales centres show that the number of visitors has risen by 5-10 pct compared with last year. The majority of our tenants also report rising sales volumes. To stay on the market, shopping chains have to keep money flowing more rapidly to maintain an appropriate level of trading assets. To achieve this they have to sell goods at large discounts. This they do in regular shopping centres where short-term seasonal sales are offered or a superfluous amount of goods is got rid of in outlets. Cash today is becoming a major factor in running a business, to ensure regular revenue in the form of rents and additional fees. Some tenants, unfortunately, are trying to finance their current operations by means that should be used for regular rent payments. For their part, asset owners have to pay bank and investor liabilities. In a word, payment monitoring is a key task.

Another task is to maintain regular contact with tenants. During the present slowdown in the economy and the negative impact of the rising exchange rate of the euro and dollar to the złoty, tenants are having to face a situation much worse than a year ago. Add to that falling sales indices and it becomes apparent just how dire the financial situation of some tenants really is. To keep their heads above water some are trying to cut costs, including rent rates. In some cases their trading performance is quite good and no real reason exists to slash costs. Our job is to support those operators that really require short-term assistance but which sell a good product and whom we wish to stay with in the future. On the other hand, we discard each and every risk-generating tenant. (EG)

AIB Polonia Property Fund is owner of the Fashion House outlets chain in Poland

Beata Kokeli

member of the board and chief commercial officer, Centrum Development and Investments, Poland

In the same boat

Today, shopping centre managers are not finding things as easy as back in the boom years. We are dealing with tenancy problems more often. In our older facilities, about 
10-15 pct of the tenants have expressed a desire to re-negotiate the leasing contracts they have signed. This regards the fixed costs and the duration of the contract. Before we sit down and start talking I take a very close look at their turnover, and honestly speaking I’m not seeing any big problems in this regard. Our rule is that we won’t be lowering rents. Instead of backing up particular tenants, I prefer to look for savings elsewhere – from some service charges, or maybe in marketing. In this way all the tenants can benefit. Reducing rents seems to be an irrational step. I understand that the expensive euro and US dollar are making it more difficult for tenants to make money, but this is a two way-street: we were the ones losing money when the Polish złoty was very strong against the major currencies. Back then no one was offering to share their profits with us. Besides, the assumption that we benefit from the strong euro is also a mistake. Expensive foreign currency means our projects are also more expensive. We really are all in the same boat. (EG)

Centrum Development and Investments manages 20 retail facilities in 15 Polish cities

Anna Pajura

operational director, Polimeni International, Poland

Still busy as usual

The majority of facilities we manage are located in smaller cities in Poland. The good thing about them is that the signs of the economic downturn are less visible there than in the larger urban centres. Nevertheless, we as property managers need to put a greater emphasis on activities such as marketing in order to boost sales. We need to devote more energy to taking the customer out for a shopping spree. Even if a customer has not been particularly affected by the downturn, he or she can somehow be reluctant to go shopping. Regarding tenants, I can’t see any particular effort being made to re-negotiate leasing contracts. Some tenants in our facilities have, however, changed their pricing and now offer discounts and bonuses more often. As for me – I am still as busy as usual, as are our local property managers. (EG)

Polimeni International manages and leases shopping centres in the towns of Słupsk and Rumia in Poland

Ágnes Varga

head of retail department of GVA Robertson, Hungary

Mind the gap

Most retailers are trying to generate more transactions by implementing bigger price reductions and sale periods; and also, instead of the 20-30 pct discounts offered in the past, they are willing to go up to 70 pct. Although this helps them generate more consumers for their products, at the end of the day, not only will they end up with relatively low incomes, but they also create an artificially big gap between the prices of the old and the new stock in the same unit. This price difference can confuse consumers, which effects the long term positioning of a brand.

GVA Robertson manages Premier Outlet Center