While convenience centers are becoming the go-to destination for everyday shopping, large malls are trying to attract consumers with leisure and food experiences. In this polarizing market, is there room for other schemes which are neither dominant enough for leisure centers, nor close enough for everyday shopping?
by Beata Socha
It might be that people are getting lazy, or it could be that they are increasingly overworked and perpetually late. No matter what the cause, Poles are increasingly taking to convenience centers, which are easily accessible on their way home from work or located close to where they live.
Developers, investors and retailers are also increasingly interested in smaller projects, looking to fill the niche. “According to JLL data, 26 percent of supply currently under construction will be within schemes below 20,000 sqm of GLA,” said Agnieszka Tarajko, senior research analyst at JLL.
A number of smaller schemes are under development in small and medium-sized cities, even those with populations under 100,000, such as Ełk (population 60,000), where the 16,000-sqm Brama Mazur retail scheme is scheduled to be delivered in August 2014, and Kutno (population 46,000), where Elbfonds Development has just delivered its Marcredo Center, which offers 16,000 sqm of GLA.
Wherever there are people
“The significance and popularity of convenience centers has been increasing for a few years now. We see demand for such schemes in smaller cities and suburban areas as well as in major markets, for example in densely populated residential districts,” Tarajko added.
Wherever new residential clusters are created, developers salivate at the prospect of investing in retail schemes. In Warsaw alone, Ghelamco is moving forward with three convenience centers: one in Wilanów (a southern Warsaw district), one in Łomianki (north of Warsaw) and one in Piaseczno (a satellite city south of Warsaw). Meanwhile, RE Project Development is preparing to launch construction on a 12,500-sqm convenience project, Ferio Wawer, located in Warsaw’s eastern district and GTC is also looking to launch a 25,000-sqm scheme in another southern satellite city – Konstancin-Jeziorna.
Other regional markets also seem able to accommodate a few more retail schemes. RED Real Estate is currently building the two-storey, 10,000-sqm Galeria Dębiec in Poznań, set to be completed in September 2014. Capital Park recently launched another of its Vis-a-Vis street malls in Łódź that will provide 5,500 sqm of retail space.
Fun, games and… food
Even though not immediate competitors to convenience centers, large shopping malls have been forced to shift their focus towards entertainment and becoming more of a weekend destination where people socialize, go to the movies and, naturally, eat. No wonder, then, that shopping malls are constantly expanding and revamping their food courts, adding more green areas and iPad bars for the tech-savvy crowd, like Unibail Rodamco is doing now in Warsaw’s biggest mall – Arkadia, as well as in its Warszawa Wileńska center.
“This is a part of our strategy of re-tenanting, re-marketing our centers,” Arnaud Burlin, managing director of Unibail Rodamco, said. “We welcome more than 20 million customers a year in Arkadia. … We want to continue to bring the best shopping experience to each of our guests,” Burlin added.
Indeed, it’s all about experience. “You could say the market is becoming somewhat polarized. Naturally, we spend far more time in big shopping malls, so much so that going shopping becomes going out. We don’t just shop any more, we go to restaurants, use the malls’ entertainment and recreation offer. You can easily spend several hours in a mall” said Tarajko. “You don’t go to malls to run everyday errands. Convenience centers are far more suitable for that,” she added.
Most experts say that convenience centers and shopping malls are like apples and oranges and thus do not compete with each other. They have different target groups, different functions and can peacefully coexist next to one another, one catering to people’s everyday needs, the other providing entertainment and a wide selection of fashion brands, including premium ones.
This all sounds very reasonable, until we consider grocery shopping, which both convenience centers and large malls have in their offer. It appears that lower prices are no longer the deciding factor and convenience takes precedence in that matter, particularly when we consider the growing share of e-commerce in the food retail segment. As a result, shopping malls are cutting back on supermarket space and instead opening up more fashion, shoes and home and interior accessories stores.
With retail being increasingly polarized into dominant, leisure-oriented destination centers and small, food and services-focused convenience centers, the ones that are under threat are the ones in the middle. “They are under competition from dominant centers, and they are not close enough to be convenience centers,” explained Thierry Lelou, head of funds management, Valad Europe.
“It’s inevitable that we’ll see obsolescence in the next 5-10 years,” said James Brown, head of EMEA Research & Consulting at JLL. With convenience at one end and leisure at the other, “it will be up to those centers to reposition or to accept the consequences of the new world of retail,” he added.
Yet not everyone agrees that this asset class is facing oblivion. “There are very few zombie centers, it’s pretty rare to see something completely dead,” said Michael Rodda, head of EMEA Cross Border Retail Investment at Cushman & Wakefield.
There is still hope for the non-dominant centers stuck in the retail limbo, however. “A center which is less interesting in terms of customer flow could actually become a center for “click-and-collect” for example. Online sales could drive footfall into those centers that we consider dying, which may end up as destination for warehousing and storage,” Rodda explained.
But even without such radical shifts, the first and second generation centers have to adjust to the changing market conditions.
“A solution worth considering is decreasing supermarket space and making room for other services, for instance a fitness club, children’s play rooms, etc. These decisions depend on the project’s position and place on the retail map as well as on how active its competition is,” JLL’s Tarajko explained.
Interview with Jeroen van der Toolen, Ghelamco’s managing director for the CEE region
The convenience segment is increasingly popular, also among tenants. This begs the question: What type of fashion brands choose to locate in convenience centers? If a brand already has its store in a shopping mall, is there room for another one in a convenience center located just a few kilometers away? Isn’t it too costly for the retailer?
That obviously depends on the tenants and their development strategies. When deciding on a location for new facilities in different types of objects, companies take into account such factors as size of the city or the center’s localization within it. Tenants who choose to operate in convenience centers, which by definition are supposed to be located near its clients, usually provide products for all family members, e.g. footwear and clothing retailers; both local, national and multinational.
They are usually medium price-range brands. The premium ones in most cases reside in large shopping malls and centers dedicated to wealthy customers. Convenience centers complement bigger centers and are an excellent alternative for tenants, which for diverse reasons do not wish to start their business in a large mall.
Some convenience centers, which are currently under construction or being planned, are built quite close to large shopping malls, for example: Your Pasaż Tukanów in Piaseczno will be less than 2 km away from Immochan’s Auchan. Aren’t you afraid of the competition?
Ghelamco’s retail centers aim to answer different needs than typical shopping malls. They will provide local communities with a wide range of retail and services facilities and an accessible place for everyday shopping. We hope to create places which will play a central role in the lives of local communities.
At the same time, unlike large shopping centers, our projects will seamlessly fit into the city fabric without disturbing local architecture. Therefore, local retail centers and large shopping malls are not necessarily a competition for each other.
Moreover, it needs to be stated that over the last few years, we have observed a change in Polish consumers’ habits. Poles are less and less willing to spend their time in shopping malls. They prefer to do their everyday shopping close to or on their way home and that is the niche for projects like ours – offering all the products of primary need in conveniently located and nicely designed centers.
Some market experts say that the retail landscape is becoming increasingly polarized, with large leisure destinations on the one hand and small nearby convenience centers and retail parks on the other, and that in a few years there might be no room for those “centers in the middle” – neither dominant, nor close enough to compete. Would you agree?
Centers providing integrated facilities, including high-quality grocery, fashion and accessories stores and a well-developed restaurant and entertainment sector, will always attract visitors. However, medium-scale centers which fail to stand out in the market might struggle to draw the attention of customers. They need to find their place in the market and properly position themselves – for example by aiming to meet the demands of more affluent clients.