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Aneta Cichla, ‘Eurobuild CEE’: How would you describe the retail portfolio managed by EPP?
Michał Świerczyński, board member and head of asset management, EPP: EPP is quite a young company on the market, but with well known and established shopping centres – and moreover with a very experienced team who have been employed on the retail market for many years, and gained their experience in both Polish and international development and management companies.
And what is the company’s approach in terms of running its retail business?
We mostly focus on making our shopping centres the best environment for the retail business of our clients, i.e. the tenants, regardless of the business line they represent. We have to be sure in every way that our centres represent the ideal place for retailing, as well as services and entertainment. Our clients are the tenants, whereas the customers who come to shopping centres are the clients of our clients. Our knowledge of providing services for customers comes mainly from our tenants. This differentiation is very important. We are not in the business of leasing square metres and selling retail units to tenants. We are in the business of providing the optimum retail environment for our tenants and creating the most exciting and diverse tenant mix for shopping centre customers. In order to achieve this we are simply going to listen and learn from our clients. We also carefully analyse all the relevant data – especially the tenants’ turnover. We draw conclusions from an in-depth analysis of whether a given business line should be strengthened with additional brands or more space should be made for others. On this basis we decide on the tenant mix. So this does not result from a discretionary approach but from many objective factors. This makes it possible for us to come up with the services customers require and want most from that particular shopping centre.
What conclusions have you drawn from your observations?
One is the growing importance of ‘retailtainment’ – the fusion of retail and entertainment. We see that people are more likely to engage with retailers who incorporate lifestyle elements into their stores, such as boutique coffee shops or virtual reality experiences. You can see examples of this in the Nike and Samsung concept stores in New York. This is why we also put a lot of emphasis on lifestyle and entertainment alongside our range of retail. This has become highly popular with the millennial generation, as these people are generally in their late twenties to mid-thirties. How catering is perceived has undergone profound changes in recent years. In fact, the range of food available is no longer an addition to a pure shopping experience, but is now also part of the reason why customers continue to visit shopping centres.
But what’s the best way to exploit this?
Food and drinks areas need to be transformed into destinations. Places that the customer will choose not just while out shopping but also as their favourite places in town, becoming true destinations. When I was working on the Hala Koszyki project I learnt that the success of each food hall comes from three things: quality, atmosphere and an authentic experience. Typical food courts in shopping centres have a completely different character and will not attract the customer to stay longer or keep them in the centre. Food courts in the past were only included to complement the centre’s range of retail. However, you can establish restaurant areas in shopping centres that become an attraction in themselves. The introduction of new food and lifestyle concepts other than food courts is a pilot concept we are working on that we are currently running in three locations.
What does this involve?
We are planning to enlarge the area for customers considerably and divide it into clear zones. This will include areas for teenagers, for families with children, and for those arranging to meet for a business lunch. Teenagers look for places that they can identify with – not necessarily with a fancy design but something with a more street or urban character, a place where they would normally hang out after school; whereas families prefer something quieter with a range of health food and attractions for children so the parents can relax. The point is for shopping centres not to be purely associated with fast food, but also with slow food, Sunday family dinners or just as a place to hang out. This change also have an impact on the design, furniture and layout of each food court. We will liaise with restaurant designers rather than those who design shopping centres, as we are aiming at out-of-the box thinking.
But it is not possible to introduce the indoor food market concept to shopping centres, is it? Particularly in small towns...
Nothing is impossible. However, this should not be understood as transposing such a concept directly into a new location. You need to think everything through and design it for that specific location and the customers’ habits in that town. And the differences between towns can be considerable. In some centres the food zone does generate great business, while things are worse in others – everything depends on what the specific clients are. The task we are faced with is how to ensure three basic elements: the quality, authenticity and atmosphere. If just one or more of these ingredients are added to standard food areas, it always turns them into something new and interesting. And by doing so, we can change the perception of a mall.
Have you taken into account the fact that the rents from such tenants in shopping centres will be lower?
Judging from Hala Koszyki we can see that the demand exists for such an approach. An intelligent and balanced combination of a wide range of food, with lifestyle and a seating area to create a destination adds up to the perfect recipe for high turnover and rent collection.
Rafał Ostrowski, ‘Eurobuild CEE’: And what about the entertainment in shopping centres? There has been so much talk about the growing significance of entertainment.
Entertainment in shopping centres generally boils down to the cinema – and we have these in the majority of our centres. Another zone that could be significantly developed is that of children’s entertainment. There are many interesting ideas for this that we would like to test out and see if they work – and then introduce them to our centres. We are thinking mostly about open children’s concepts that could interact, for instance, with the food zone. There are many ideas being floated, such as adding trampolining or bowling alleys – but we are approaching them cautiously.
How are you responding to online sales as a shopping centre manager?
E-commerce is certainly a challenge for tenants and shopping centre owners but also a great opportunity to raise sales in traditional stores. Online shopping gives you convenient and quick access to most of the available merchandise in shopping centres, but without the whole physical shopping experience. I have recently seen a study that indicates that the youngest generation of customers are returning to shopping centres because they are bored with their virtual lives as digital natives, they want something more. Around 50 pct of young customers in the UK who shop online make their final purchases in traditional stores on a click-and-collect basis as they want to feel and see the product before they buy it.
We need to work hard to provide enough incentives for our customers to make the trip to a physical location through introducing the retailtainment I mentioned, mobile apps for online shopping and better service features, but also through understanding the customers’ needs
What are the greatest challenges that lie ahead for shopping centre managers?
Making the centre the number one target for all retailers, thus improving the footfall and turnover growth. This will never change. We will be seeing more centres being renovated rather than developed across Poland. The competition among the established retail centres will become greater. We need to better understand where retail is heading to and prepare ourselves for innovations and a generation of new customers. This will allow us to respond quickly. We are also constantly looking at and improving our centres.
Let’s move on to projects under construction. What can we expect from your Galeria Młociny and Towarowa 22 projects?
We are the owner of centres that dominate in their locations. Both of those projects will reign supreme in their catchment areas. We will be putting Galeria Młociny into operation in 2019. Its great advantage will be the direct access to the underground station. It will have a top standard range of retail. Areas have been reserved for large stores to open their flagship concepts in these centres – and these will be the most modern in the city. Added to that, we are in negotiations with brands looking to make their debuts in Poland and Warsaw in Galeria Młociny. A large children’s and youngsters’ zone is planned, along with an extended food court that opens out onto to a green garden, as well as a large and convenient car park. Towarowa 22, meanwhile, is an example of a place where retail can evolve.
Could you tell me how many shopping centres you are planning to buy in the near future?
There are 14 existing shopping centres in our portfolio. We would like to double this figure by 2020. We are on our way to fulfilling this promise, but to give you a more specific answer we have been looking at a number of market opportunities that fulfil our key criteria, that is, regionally dominant shopping centres with the potential for extensions or innovative improvements and with catchment areas that include about 150,000 people – and that are retail projects in major cities where we are not yet present, such as Łódź, Poznań and Gdańsk.