Internationalisation of retail gains momentum amidst the economic gloom

23 Nov, 2011, Prague

‘An increasing number of retailers and investors are stepping up cross border activity and international expansion in search of growth in response to downbeat economic sentiment in Europe,’ according to a new report from Cushman & Wakefield, What’s in store for European retail 2012?

Cushman & Wakefield expects to see international expansion move yet further up the agenda for the leading brands in 2012 but points out that retailers are still exercising caution and are actively evaluating their existing store portfolios to lessen costs and maximise margins where they can, with many restricting their focus to major global cities in the prime high street and shopping centre locations.

A focus on modern space ties in with retailers’ need for efficiency, sustainability and for the integration of technology. However Cushman & Wakefield’s `What’s in store for European retail 2012?’ report highlights the increasingly tight supply of prime space, with availability not helped by a trend for some retailers to buy their own freeholds. Market access will not be made any easier by the limited development pipeline and the report suggests this will be a major challenge to retailers’ expansion strategies. Furthermore, the currently projected delivery total of 6.8 million sq.m for 2011 (46% accounted for by Russia and Turkey) is likely to fall short due to various schemes reporting delays.

Retailers rush to embrace multi-channel offering

The race is on for retailers to adapt their stores, their methods of operation and strategies to enhance the customer experience and to develop their multi-channel offer, with m-commerce as well as e-commerce likely to be a key battleground ahead. No one strategy can be assumed to work in all markets but a need for efficient, wired and well-located visible property will be a key theme in all top cities according to Cushman & Wakefield.

“Retailers in the Czech Republic are generally aware of these trends although the push for hybrid distribution models is still driven by companies which grew up in the e-commerce segment. As elsewhere in Europe, the lack of flexible logistics solutions remains the main bottleneck of the industry,” says Alexander Rafajlovič, head of research at C&W Czech Republic and Slovakia.

Retailers however face falling supply levels for the best space and with development limited, rents have been bid up by the competition. In more secondary areas however the reverse is still true – availability is high and often still rising and rents and incentives remain under pressure.

“Going forward, we will see further polarisation in the performance and segmentation of shopping centres. On the other hand, there are several examples of secondary schemes being able to adapt once they focus on serving local communities and zero in on the convenience or mass market segment. Although this can save the centre, the same cannot necessarily be said about the value the developer or investor ascribed to it initially.” says Alexander Rafajlovič.

Mark Burlton, head of EMEA retail tenant rep at Cushman & Wakefield explained; “With local markets getting tougher and in some cases stagnating, an increasing number of brands are diversifying into new untapped markets which provide much needed and exciting potential for revenue growth. At the same time, shopping centre owners and landlords are seeking new and often foreign brands with innovative store designs and an enhanced customer experience which is helping to drive cross border expansion and innovation. The basic message we have for success in the market in 2012 is to keep it fresh – the market is crying out for new ideas and concepts – but stay focused on prime – retailers still need access, proximity and visibility.”

Retail economy: polarized but slow into 2012

Cushman & Wakefield expects the best value and luxury retailers to continue to perform strongly. Frugal spending and a focus on value by consumers has benefitted value retailers and discounters such as Lidl, Aldi, Primark and H&M whom are expanding their portfolios, while the very wealthy are more insulated from economic headwinds and more particularly, consumers in general still aspire to the best when they can, ensuring that many luxury retailers continue to prosper.

LUXURY VS. VALUE

*: Average year-on-year growth in revenue of LVMH, Richemont, Polo Ralph Lauren, Gucci and Chanel.
**: Average year-on-year growth in revenue of H&M, TJX Companies, Primark, Aldi and Lidl
Source: Verdict, Mintel, Datamonitor and Company Records

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