JLL Retail 2010 Retail Futures Report - BID Leamington

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JLL Retail 2010 Retail Futures Report - BID Leamington

Ten years on,

ten years forward

Retail 2010

Review of Retail Futures

by Jones Lang LaSalle 2000


02 • Jones Lang LaSalle Retail 2010

Introduction

Introduction:

The Value of Foresight

It is often said that the future cannot be predicted and, of course, in a

literal sense that is absolutely true. No one has a crystal ball and life

has a way of coming up with unpredictable events and outcomes.

However, it would be wrong to conclude that, because of this, you

should not try. Some things are knowable, for example, demographic

forecasts tend to be rather accurate, based on actuarial calculations.

Other trends can be seen and measured today – and their growth in the

future is fairly evident. For example, the feminisation of society or the

rise of China. Finally, if you know where to look, certain weak signals

indicate that something which is minority today, will become much more

widely diffused in tomorrow’s world e.g. use of mobile apps.

Frequently, then, the future is not foreseen simply because few attempt

to anticipate it – and not because it is absolutely unknowable.

Jones Lang LaSalle has, for many years, understood the importance

of foresight and has dared to look into the future for the benefit of its

clients. We have launched several initiatives to anticipate the world to

come. In 1999 we ran a scenarios exercise and a year later, published

a robust study of 10 consumer and economic trends for the decade

ahead, called Retail Futures, 2010. Most recently, we analysed the next

decade i.e. 2010-2020 in our report Retail 2020.

Getting to the future first is an important competitive advantage and

requires companies to have the most accurate assumption base about

tomorrow’s world. But how to convince others about the quality of

Jones Lang LaSalle’s retail foresight


03 • Jones Lang LaSalle Retail 2010

Introduction

The most robust method is to review the quality of past forecasting and

to assess the degree of success in predicting the future. This is what

this Report is all about. By looking back on the 2000-2010 Retail Futures

Report, we can take stock of what we got right and what we missed.

Following a top-line summary, this review falls into two parts:

1. An analysis of the accuracy of the 10 socio-economic trends

underlying the Report

2. A review of our predictions concerning the impacts of these trends

on retail and retail property.

Finally, a word of caution. As you read through this Report and its honest

assessment of our predictions, remember that these foresights were made

back in 2000. It is easy from today’s vantage point to look at predictions

about, for example, the growing service economy and say: “well, anyone

could have seen that coming”. Once again, the skill (and courage), back in

2000 was to go live with these trends where others feared to tread.


04 • Jones Lang LaSalle Retail 2010

Introduction

Top Line Summary

By identifying and drawing upon ten key trends, our last report was

particularly prescient.

We got a lot right and successfully predicted many of the forces shaping

the consumer and retail landscape between 2000 and 2010. Many themes

were anticipated where events proved us right.

We correctly highlighted:

- three holistic socio-economic scenarios

- globalisation

- polarisation of markets

- the emergence of complex household structures

- the new wave of conscientious consumption

and socially responsible companies

- the strong emergence of experiential retailing

- the siphoning of spending to services

- the role of brands as status symbols and as shortcuts to decision making

- an increasing interest in well-being markets

- emerging clever consumption patterns

- shopping as a pleasurable leisure activity

- the fact that the recession at the start of the decade would not be prolonged

- the influence of globalisation on price deflation

However, we underestimated:

- the full impacts of new technologies and the internet

- the growth in consumer credit

- the explosion of impulse purchasing behaviours

- the dominance of retailers such as Tesco and the Inditex Group

Meanwhile, we did not predict:

- the great boom conditions for retailers from 2003-2007 fuelled by easy credit

- the end-of-decade recessionary disaster

Nevertheless, whilst you can’t get it all right, we are rightfully proud of

our previous report. It provided a solid map from which to navigate the

unfolding 2000-2010 retail environment and gave timely guidance to our

clients who read and used it to help them anticipate retail impacts.

And, of course, we aspire to do even better for our Retail 2020 Report.


1

Retail 2010

The accuracy of the

10 socio-economic trends

Retail 2010


06 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

The accuracy of the

10 socio-economic trends

1. Polarisation and Sacrificial Consumption

What we said: “Income distribution continues to polarise and European

comparisons show that this trend is accentuated in Great Britain. This has

implications for the middle market which is seeing erosion of its customer

base. This is reinforced by the emergence of a sacrificial consumer willing to

trade down on some aspects of consumption in order to trade up on others.”

Income inequality in Britain is much higher than

in Continental Europe as indicated in our analysis.

The Gini coefficient is a measure of income

inequality where zero corresponds to complete

equality and one is complete inequality.

By 2009, Britain had a Gini coefficient of 0.36

compared to Sweden at 0.23; Germany 0.28;

and France of 0.33.

Meanwhile we were right to predict that income

polarisation would continue:

The gini coefficient measure of overall income inequality in the UK

is now higher than at any previous time in the last thirty years

Gini coefficient for disposable household

incomes after deducting housing costs

40

30

20

10

0

1980

1985

1990

1995/96

2000/01

2005/06

Source: Households Below Average Income, DWP (1994/95 onwards) and the Family Expenditure Survey (earlier years) obtained via

data published by the IFS; UK; updated Aug 2009


07 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

Whilst middle income groups’ earning power held up,

it was the very lowest income group which saw

relative declines across the decade. Middle income

earners also had access to cheap credit which

supported their spending.

We were completely accurate in our view about

sacrificial consumption behaviour and its impact on

middle market retailers.

Of course, anecdotally, we know that discounters like

Aldi and Netto and low price operators like Primark

and H&M have done very well over the decade.

Meanwhile, luxury brands have also had a strong

decade. This stands in start contrast to more

mid-market retailers like Woolworths and Pier Import

which have closed their doors and C&A which

pulled out of the UK.

Source: McKinsey, 2005

Sacrificial Consumers re-evaluate price/quality: the mid-market is disappearing

8

1999-2004 CAGR% (UK)

4

0

High end

Value

-4

Middle market

-8


08 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

2. Globalisation – a Solution to Margin Pressures

What we said: “Retailing has been relatively immune to the pressures

of globalisation. However, global networks will grow. Meanwhile

globalisation will lead to price deflation due to greater price transparency

and increased competition.”

After many false starts in the 1980s and 1990s,

the 2000-2010 decade was when retail really went

global – as we predicted.

Wal-Mart is, today, the world’s largest retailer with

stores in 15 countries. Second in the international

list is Carrefour with stores in some 36 countries

by 2010. Next comes German-based Metro with

stores in 32 countries. Britain’s Tesco is fourth

biggest with supermarkets in 13 countries. All told,

the message is clear. To be the biggest, you need

to be very international.

And the move abroad continued well into the

second half of the decade. Jones Lang LaSalle’s

research from 2009 identified that the number of

movements by retailers entering a new market for

the first time increased by 28% between 2006 and

2008 alone.

Meanwhile, has a globalised world led to price

deflation as we predicted You bet! Here’s what

respected journalist Jeremy Warner had to say

about the influence of China on world prices:

“In a number of respects China has been extremely

good for the developed economies over the past five

years. By producing an ever expanding quantity

of cheap goods, it has helped keep prices low.

This deflationary effect has allowed central bankers

to maintain low interest rates, which in turn has

allowed consumer demand to remain high.”

(The Independent, 2008)


09 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

3. Shifting Core Competencies within the Value Chain

What we said: “Increasingly, the factors that were a Unique Selling Point

for companies within industries have become perfunctory. To differentiate

retailers must innovate and this may require them to move away from their

core competency towards a new value chain based on brand and service

delivery. This leads to solutions being consumer driven.”

To an extent, retailers have stuck to doing

what they do best over the last decade: sourcing

value for money goods, delivering these to store

with ever more efficient logistics, driving down

store operating costs, finding customers and

keeping them happy.

Nevertheless, it is also true that retailers and

shopping centre managers increasingly have gone

beyond their core competencies. It is certainly not

uncommon to see in-store coffee shops and restaurants,

for example. Most retailers have an internet strategy

today, even a social media venture – and these

competencies were not at all developed in 2000.

Recognise that these are not simply multi-channel

strategies but brand-as-portal initiatives. Most recently,

Tesco have launched a fully fledged banking concept

and a mum’s to be social site (mumsnet.com).

Other retailers have stretched their brand into sport

(Printemps), well-being services (Boots The Chemist)

and home planning (IKEA).

Meanwhile, because of changes to the value chain,

brands themselves have become retailers, some

examples being National Geographic, Apple and

Puma – and there are many, many others.

We have witnessed all sorts of innovation in

Shopping Centres too. We now have a wide leisure

and catering offer sitting besides retail in most new

builds. From aquariums to climbing walls and from

ice-rinks to libraries, the offer has moved on

substantially over the decade.

Retailers and

shopping centre

managers have

gone beyond their

core competencies


10 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

4. A ‘Forever Young’ Society

What we said: “Society is ageing. However, the behaviour and aspirations

of this group of society’s elders is unlikely to conform to that of the previous

generations - these are the swingers of the 1960s.”

Socio-cultural studies amongst Baby Boomers (the

generation born between 1945-1965 and therefore

between 45-65 years old in 2010) do indeed

demonstrate that they do not share the values of the

pre-War generations. The table shows the ways in

which they have ‘forever young’ values.

BABY BOOMERS

45-65 yo in 2010

BABY BOOMERS

65+ yo in 2010

Optimistic

Expressive

Consumerist

Modernity

Down with hierarchy

Belief in Choice

Global

Passive

Changing destiny

Source: Sociovision, Futures Coaching

Pessimistic

Constant

Saving not spending

Tradition

Hierarchy

Status

Local

Active

Accepting fate

To take a couple of other examples of ‘forever

young’ attitudes:

- one study of health clubs found that membership

rates amongst the over 55s had increased by 562%

since 1987 and that the over 55s represented 25%

of member

- in 2008, worldwide sales of Viagra were up 10%

to $1,934,000,000.

Readers will recognise instantly the validity of this

prediction from their own lives. Acquaintances,

colleagues and family members coming up to

retirement invariably have a lot of fight left in them;

not so long ago retirement signalled that death was

just around the corner. Not in 2010. Fifty is the new

30, as they say, 60 is the new 40.


11 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

5. New Lifecycles and New Income Patterns

What we said: “Social change is also creating much greater volatility

in disposable income patterns over the adult lifecycle. Factors such

as remarriage, second families, older dependents and adult children

delaying leaving the parental home will decrease the traditionally high

disposable income of, what were the 50-something empty nesters. In

contrast, young adults staying at home benefit from lower costs and

higher spending capability.”

Looking into the detail, the picture is mixed. It remains

true that, on average, the over 50s are wealthier than

the under 50s. According to British Actuary data, the

over-50s account for 42% of all adults, and have a

collective pot of £175 billion disposable income, 30%

more than the under-50s. Some 85% have private

pensions and the group also accounts for 80% of all

private wealth.

However, it seems that we were on to something

very significant when forecasting the impact of adult

children who do not leave the family home – or who

come back after a short period away – the so called

‘Boomerang Generation’.

According to data from Britain, 28 per cent of parents

have to take drastic and unexpected financial measures

to help their 18 to 30 year old children. The latest figures

suggested as many as half of parents borrow the money

needed, with almost all parents (93%) paying at least

something towards their children’s finances.

Half of over 50s say that their pension is not sufficient for

retirement and yet they are feeling the financial squeeze

of funding both their own children and their parents – and

so are putting their own financial futures on the line.

Two thirds of parents said they have had to or will

reduce their day-to-day living costs to fund their adult

child, from shopping more economically for food, selling

their cars and monitoring the use of heating and lighting

at home. (Source: Daily Telegraph, 17 February, 2010)

Meanwhile, according to Saga, the cost for

50-somethings of looking after a dependent parent

could be as much as £20,000-£30,000 today,

particularly if a care home is involved. Clearly these

kind of figures dent disposable spending capacity.

In fact, this trend of 50-somethings finding their

incomes squeezed now has its own name: they are

being called Babygloomers.

Surprisingly, we were wrong to predict that family

life was getting more heterogenous with remarriage

rates rising for example. Taking ONS data for

England & Wales, the number of marriages fell from

2000-2007 by 12% but remarriages fell by more – 17%.

It seems that the stronger tendency these days is

to be single. For example, in France the number of

single person households climbed 17% between

1999 and 2006.


12 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

6. Conscientious Consumption

What we said: “There is growing concern as to the downside of

globalisation and consumerism, particularly child labour and exploitation

of third world economies and the smart consumer requires legitimisation

of their consumption behaviour. This is neatly provided for by green and

ethical consumption.”

As we predicted, there was an explosion in the

purchasing of ethical products and services over the

period. The chart below graphically illustrates how

strong this trend has been.

Overall, the ethical market in the UK was worth

£36 billion in 2008 compared to a mere £13.5 billion

in 1999. In France up to 40% of consumers say they

consider ‘la consommation responsable’ when

making purchases – and by 2007 this represented

4% of all purchases – still low but a dramatic

increase from the start of the decade.

This is one trend which was unequivocably proven

over the period.

£16m

1999 2008

Conscientious Consumerism in the UK 1999-2008 – Ethical sector

12

8

4

0

FOOD & DRINK

GREEN HOME

ECO-TRAVEL

PERSONAL

PRODUCTS

COMMUNITY

FINANCE


13 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

7. Experience Retail – Want not Need

What we said: “As society ages and adults mature towards self-actualisation,

consumers will be increasingly as satisfied by a service as by a product.

This is evidenced by the growth in the service economy over

manufacturing, as well as the proliferation of coffee bars and attractions.”

For varied economic and social reasons, manufacturing

is in long term decline across the Eurozone – the drop

has also been severe in the UK as well outside

of Europe such as in Japan.

As we expected, the job growth has been almost

entirely fuelled, across Europe, by a growth in the

service sector. From hotels to leisure parks,

restaurants to retailing, there are more and more

people engaged in providing services. Clearly, the

supply has grown but this is driven by consumer

demand, again as we anticipated. The table below

shows the rise in service consumption.

We will see the impact that this growth in services

has had on retail and retail property in Part 2.

120

80

40

0

2001

Employment in the Manufacturing Sector

2003

Eurozone

UK

Japan

2005

Index vs Q42000 = 100

2007

2009

Source: Experian, IHS Global Insight 2009

Source: IHS Global Insight 2009

Proportion of Service Consumption from Total Consumption, 2000-2010

50%

2000 2010

40%

30%

20%

NETHERLAND

FINLAND

SWEDEN

IRELAND

UNITED KINGDOM

GERMANY

SPAIN

TURKEY

BELGIUM

FRANCE

POLAND

CZECH REPUBLIC

RUSSIA

ITALY

PORTUGAL

HUNGARY


14 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

8. Brand as Belief System

What we said: “The knowledgeable and confident consumer still requires

guidance given the level of choice available on even the blandest of items.

Consequently, brands have been described as the new religion, and those

which communicate strong, clear beliefs and an original perspective are

more likely to be successful.”

In a study in America consumers who were shown

24 different types of jam were only a tenth as likely

to make a purchase as those shown just 6 types

(Source: Sheena Iyengar, Columbia University).

The message is clear. Hyper-choice paralyses even

clever consumers and kills sales.

So, can brands cut-through as we predicted back

in 2000

Clearly, the decade saw the biggest brands produce

enormous results for their holding companies.

Interbrand publish a ‘Best Global Brands’ ranking

every year. Here are some of the staggering growth

rates between 2001 and 2009.

BRAND

Nike

IKEA

Amazon

VALUE

$m, 2001

7 589

6 005

3 130

VALUE

$m, 2009

13 317

12 004

7 748

CHANGE

%

75

100

148

Source: Interbrand

It is evident that

brands are enjoyed

and loved by

consumers – but do

they help choices

It is evident that brands are enjoyed and loved by

consumers – but do they help choices

A.G.Lafley ex Chairman, President and Chief Executive

of P&G, clearly thinks they do: “The best brands

consistently win at a crucial moment of truth: at the

store shelf when a consumer decides whether to buy

one brand or another”.

Kevin Roberts CEO Worldwide of Saatchi and Saatchi

confirms: “The number one job for any marketer these

days is competing for attention” and he goes on to

explain how forming a deep emotional connection

is necessary by creating ‘Love marks’ – the stage

beyond brands.

And one more expert, Kevin Randal, of the Brand

Channel: “Branding today is a strategic tool that

helps the supplier cut through the morass of the

market, get noticed, and connect with the customer

on many levels and in ways that matter. A strong

brand becomes the customer’s “shorthand” for

making good choices in a complex, risky, and

confusing marketplace.”

All told, we were right when we asserted brands

would be a growing and powerful guide to help

consumers navigate and that brands with strong

identities would do much better.


15 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

9. Consumer Apartheid

What we said: “In terms of profitability, all customers are not equal and,

as a result of store cards, retailers are in a privileged position of identifying

different categories of customers. We are only at the beginning of the

process of identifying and differentially serving customers – but this will

lead to high levels of customer complaints in the future.”

The trend towards customer loyalty cards has certainly

increased across the period and it now seems like

most garden stores, supermarkets, clothing stores

or perfumeries offer a fidelity programme. Today, it

is estimated that 85% of British households hold at

least one loyalty card.

To an extent, possessors of a loyalty card are given

certain privileges that walk-in consumers do not have.

They may receive vouchers, get sent special mailings,

be invited to an exclusive discount evening. All these

devices and more are what we were getting at when we

talked about the trend towards consumer apartheid.

And whilst consumers may not appreciate it, hot

lines are often mechanistic about their filtering of

consumers. When consumers are asked to give

their card number, the highest value clients get

answered quickest. It’s Darwin’s evolutionary

law – or, at least, survival of the richest.

On the other hand, the floodgates have not opened

to bare-faced discrimination in the marketplace.

For example, few supermarkets offer a scheme of quicker

queuing at the checkouts if the customer pays extra.

The truth is that, even today, money cannot buy better

grades of service from most stores – and most

retailers continue to adopt a very democratic service

policy – everyone is treated equally.

So, whilst it is true that consumer complaints have

gone up, as predicted, over the decade - the cause is

less due to feelings of consumer apartheid and more

down to higher expectations and more determination

to assert consumer rights.

As an illustration of the increased desire to complain,

Britain’s RBS bank is receiving an astonishing 1,600

complaints every day (Source: Daily Mail, 23/04/10).

It’s Darwin’s

evolutionary law.

Or at least, survival

of the richest


16 • Jones Lang LaSalle Retail 2010

The accuracy of the 10 socio-economic trends

10. Cars – the ‘Love Bug’ lives on

What we said: “Regarding transport, unsurprisingly the car is the preferred

mode of transport in Europe. It is highest in the UK where shopping

accounts for 20% of all trips and when social and entertainment is

included this increases to 46%. Aside from convenience, the popularity

of the car also reflects the lack of an efficient and reliable substitute.

Accessibility remains critical.”

Our predictions about people’s love affair with the car

turned out to be true for most of the decade, although

cracks in the consensus were seen early on. Of course,

people continued to love the car for its point-to-point

convenience, for its load carrying capacity and for the

social status it can bring. On the other hand, building up

across the decade were concerns about pollution,

frustrations about congestion and the worries associated

with ownership (parking, servicing, vandalism and theft).

All told, the love affair has become challenged and, at

the same time, municipal authorities are building some

acceptable replacements in urban areas – especially

the tram. Cities with much improved tramways include

Paris, Vienna, Istanbul, Stuttgart and Athens.

Given the fall off in support for the car, and given

the late decade recession and inflated fuel costs,

new passenger car registrations fell away from 2007.

One thing continues to ring true with our predictions

about transport. Accessibility is key. In a survey for

London’s West End undertaken in 2006, 64% said that

West End shopping was not accessible by car – and

so 89% used public transport. Clearly, many out of

town shopping centres are only accessible by car;

public transport is minimal/non-existent. Consumers

have therefore taken a ‘horses for courses’ approach

to transport when going shopping over the last decade.


Retail 2010

Reviewing our predictions about

the impacts of these trends on retail

and retail property

2

Retail 2010


18 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

Reviewing our predictions about

the impacts of these trends on retail

and retail property

The decade started with the aftermath of the dot.com

bubble and a mini recession. Low interest rates

fuelled another bubble, this time in housing and

shares. Once again this burst, most spectacularly in

2008 heralding the Great Recession at the tail end of

the decade. All told, the overarching sustained pace of

world growth, the rapid growth in complexity and depth

of credit markets and the progressive loosening of

regulation, not to mention the long period of low,

stable interest rates meant that consumer confidence

grew strongly between 2003 and 2007. The result –

the retail industry could expand rapidly without

having to innovate significantly.

But as this period of unrestrained growth came to

a spectacular end, the world tumbled into a sharp

economic downturn which has again caused changes

in shopping patterns and reset the bar for performance

in the retail market. The lasting impacts of the

recession on the consumer and the implications for

retail property are amongst the themes explored in

our forthcoming Retail 2020 research.

The ten social and consumer trends we reviewed in

section 1 provided the backdrop to an appraisal of

the challenges we felt the retail industry would face

over the next ten years to 2010. In our Retail 2010

Report, we highlighted the opportunities for both

occupiers and owners and here we revisit some of

our predictions and assess their accuracy.

Source: European Commission, Jones Lang LaSalle

Global Events impacting European Consumer Confidence

10

0

-10

DOT.COM

BUBBLE

BURST

9/11 TERRORIST

ATTACKS

EU Consumer Confidence Index

Long Term Average

COLLAPSE OF GLOBAL

HOUSING BUBBLE,

LIQUIDITY SHORTFALL

LEHMAN

BROTHERS

COLLAPSE

-20

-30

JAN 2000

JAN 2002

JAN 2004

JAN 2006

JAN 2008

JAN 2010


19 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

Internationalisation of Operations

We said: “Globalising operations is a further way of increasing volumes

whilst at the same time reducing procurement and logistics costs. It also

has the effect of keeping retailers on their toes in terms of reinventing

and differentiating their offer from competitors whilst maintaining

service quality. Nevertheless, organic growth is expensive. This suggests

an increase in M & A activity or of retail co-opetition associations.”

Large numbers of retailers have extended their

networks considerably during the decade and there

have been significant increases in cross-border

movements in Europe. As we saw earlier the number

of movements by retailers entering a new market for

the first time increased by 28% between 2006 and

2008 alone. Star retailers H&M and Zara have been

amongst the biggest exporters to new territories.

But the industry remains largely fragmented. In our

report ten years ago we estimated that by 2009, 40%

of global retail sales would be shared by the world’s

Top 25 biggest brands. In reality this figure is only

around 10% which is similar to the level in 2000.

An increase in M&A, particuarly in the food sector

has occurred over the decade – the Rewe purchase

of the Plus Discount stores in the Czech Republic

and Carrefour of the Artima chain of supermarkets in

Romania are but two examples. This has allowed

expanding retailers to take advantage of existing

supply chains and accelerate their local progress.

Retailers entering new markets via franchise has

also been an active trend with New Look (Poland),

Liu Jo (Czech Republic) and more recently Desigual

(Slovakia) amongst those expanding via this route.

You will notice that these examples are all going into

Central and Eastern Europe – no coincidence given the

growth prospects but lack of retail maturity in the region.

Globalisation has led to increased competition

rather than industry consolidation. This increased

competition, coupled with the influence of low cost

Chinese production helped restrain inflation in the

majority of Western European markets. The

continued development of the internet as an

information gathering and price comparison tool

also contributed towards this.

The implication, as correctly identified in our report,

has been for retailers to become more savvy with

their cost bases, e.g. through procurement and

efficient economical logistics, in order to enhance

profit margins – and therefore facilitating growth in

rental levels for their landlords.

6

4

2

0

GERMANY

Average Annual CPI Growth % 2000 - 2010

FRANCE

UK

ITALY

Source: IHS Global Insight 2009

SPAIN

POLAND

HUNGARY


20 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

New Anchors & New Owners

What we said: “Visitor attractions, displays and exhibitions may become

the new retail anchors. The metamorphosis of retailing into leading visitor

attractions may require a new breed of investors and or partnerships such

as film studio and exhibition centre operators.”

Leisure now comprises a larger part of shopping

centre floor space than ten years ago. The catering

offer in particular has taken huge strides – the food

offers at Westfield London and Istinye Park, Istanbul

are successful and unique focal points. But, in all

honesty, the incorporation of large ‘destination’

attractions into Europe’s shopping centres has

been fragmented.

The primary reason for this is the cost of space.

Retailers have on the whole experienced healthy

turnover over the last 10 years and rental growth

has therefore been strong which has driven asset

values. Owners have been reluctant to sacrifice

leasable space to low rental generating attractions

when the demand for retail units has been so high.

Fit out costs for leisure attractions are also

notoriously high, with little guarantee in way of long

term income security. And let’s not ignore the

growth of personal/home entertainment either

which has strengthened competition away from

other leisure attractions.


21 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

Where large scale non-retail anchors have been

developed the focus has continued to be on the

Multiplex Cinema – a proven winning formula. Some

developers however have searched for ‘the next big

thing’ over the decade and the high growth markets

largely led the way with this in terms of innovation.

2003 saw the opening of the SnowZone anchored

Xanadu shopping centre in Madrid. And at the very

end of the decade, Forum Istanbul opened featuring

175,000 sq m of retail floorspace as well as Turkey’s

first major Aquarium and large exhibition space to

host cultural and artistic events. IMAX cinemas, Ice

Skating rinks and Casinos are amongst the other

concepts that have been integrated into shopping

centres. (see graphic below)

As for the new breed of investors and partnerships

to finance, manage or own the new leisure anchored

schemes – this hasn’t materialised as we had

speculated. Institutions and specialized retail funds

have remained resistant to leisure.

Owners have however become savvy to the benefits of

utilising the space not initially intended to be leased such

as internal thoroughfares and car parks. Car displays, or

indeed Harley Davidson exhibitions became a popular

interest, footfall and dwell time driver.

80%

Source: Jones Lang LaSalle

EAST

WEST

Leisure Provision in New Schemes* 2007-2008, East vs Western Europe**

60%

40%

20%

0%

CINEMA

IMAX

BOWLING

BINGO

EXHIBITION

ARENA

THEATRE

ICE

SKATING

CHILDREN’S

ENTERTAINMENT

CASINO

GYM/

FITNESS CLUB

BILLIARD/

POOL

* New scheme openings relate to analysis carried out by Jones Lang LaSalle in 2008, assessing 21 new European shopping centres with

a GLA of 30,000 sqm or greater opening between January 2007 and February 2008. Russia was not included in the analysis.

** Eastern Europe refers to the contemporary geographic definition of Central and Eastern Europe, including Greece and Turkey. Western

Europe is defined as all countries to the West of Germany, Austria and Italy inclusive. Russia was not included in the analysis.


22 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

New and Experiential Offers

What we said: “There is a requirement for retailers to offer more

experience than product. Blending leisure and retail is not in itself

a new concept; however leisure and retail tend to be offered as discrete

entities that may be housed within the same wider environment.

Experience retailing requires a much greater blurring so that retail and

leisure are indistinguishable. We expect this to develop both in number

and in terms of the virtual reality experience offered.”

gave momentum to the innovators. New concepts

accelerated the move away from ‘hard retailing’ and

a definite shift towards experience was apparent.

We have seen this trend develop but at a slower pace

than anticipated. Given the strength of consumer and

credit markets there was no burning need for the

rapid development of experiential retail. People have

been largely happy to spend their money wherever

and however. Some retailers such as Swedish

based Monki or US brand Hollister have embraced

innovation and the creation of experience – although

remained relatively niche on a European scale.

As 2010 approached however, the increased

competition felt in local markets through

globalisation and the onset of the global recession

Much of this has been community orientated, for

instance Jamie Oliver’s Recipease (the food & kitchen

shop where people can learn to cook) or the de-branded

Starbucks ‘15th Avenue’ concept. US ladies fashion and

homewares brand Anthropologie is one of the stand out

successes in merging the part-retail, part-cultural

space concept which encourages escapism.

Shopping Centre developers also began to react

more innovatively. Jones Lang LaSalle’s report from

Summer 2008 titled ‘European Shopping Centres –

One Size Fits All’ explored a shift towards developers

creating the ‘Third Place’ by using retail as an anchor

for community life; creating a place people no longer

go purely to shop, but rather to shop when they’re

already out. Mixed use developments, leisure &

entertainment and catering have all been central to

the creation of such Third Places with Princesshay,

Exeter UK amongst the standout successes.


23 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

New Types of Locations

What we said: “With leisure time scarce we may see retail relocate

to destinations where relaxed tourists may be found with the time

and money to consume.”

Developers have moved increasingly out of town,

often strategically locating where footfall is highest –

and to where there are significant numbers of

tourists – such as airports and railway stations.

A unique example of this include Multi’s I Petali di

Reggio shopping centre in Reggio Emilia, Italy

which was developed alongside a football stadium

complex. Existing destinations, such as transport

hubs, have also been the focus for much retail

development. A good example is LOOP5 in

Weiterstadt, near Frankfurt Airport in Germany

combining its non-traditional location with a play

towards ‘experience’ by harnessing the aviation

theme throughout the centre design.

St Pancras Station, London,

In the UK, T5 at Heathrow airport and St Pancras

International rail station are good examples of how high

footfall doesn’t have to restrict the tenant mix to mass

market, with both featuring higher end brands. The likes

of Bulgari, Gucci and Tiffany & Co can be found at T5

whilst Thomas Pink and LK Bennett at St Pancras.


24 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

One Size Doesn’t Fit All

What we said: “Leasing and management strategies can no longer rely

on the accepted universal tenant mix. Generally, retail locations have

tended to avoid building brand preferring to abdicate responsibility to

retailers and in this way appeal to the widest cross section of consumers.

However, polarisation and lifestyle clustering require retail locations

to define themselves by target lifestyle groups. The agglomeration

economies of retailing still stand but polarisation requires a more

selective approach to tenant mix. This requires branding and marketing

of the location as an umbrella retail offering.”

We have seen a small shift in the direction we

anticipated and landlords have become shrewder in

their tenant mix strategies. However, clustering retail

locations by lifestyle group (or even clustering

retailers by lifestyle) is still developing as a concept.

Taking a hard look at the overall retail provision, it is

hard to avoid the conclusions that, over the decade,

it became increasingly formulaic across Europe,

reflecting the growing internationalisation of the retail

sector and a desire to replicate a ‘winning’ formula.

The fundamentals of retail anchor and tenant mix follow

a similar pattern based on the developers’ experience of

what works and what doesn’t. The influence of Western

developers and tenants moving East has also acted

as catalyst for this convergence.

Fashion retailers comprise around half of the units

in most new shopping centres and cross border

retailers are becoming increasingly dominant.

Jones Lang LaSalle research has found that Zara,

Pull & Bear and Bershka were present in over 50%

of all new schemes* opened in 2007-8 whilst H&M,

Promod, Levis and Esprit were present at 40% of

new schemes. In many respects European shopping

centres and high streets have become increasingly

cloned from a tenant perspective.

In addition, consumers are also more likely to make

purchases cross border now than ten years ago, with

a quarter of EU consumers having made at least one

cross-border purchase during 2009 (source: European

Commission). People are spending more on air travel

and seeing different places, but with this comes the

(perhaps sub-conscious desire) for a degree of

familiarity. Consumers have started to expect to see

the same brands regardless of location or country.

* New scheme openings relate to analysis carried out by Jones Lang LaSalle in 2008, assessing 21 new European shopping centres with

a GLA of 30,000 sqm or greater opening between January 2007 and February 2008. Russia was not included in the analysis.


25 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

Polarisation and the Power of Brand

What we said: “Income polarisation coupled with sacrificial buying

behaviour is mirrored in the polarisation of retail operators with mass middle

market players suffering the greatest erosion of their power base. To succeed

retailers and investors need to (re)-define their offer and articulate it

clearly to a defined lifestyle target group derived through socio-cultural

analysis. This links to the power of brand as a means of communicating

a set of values and aspirations to consumers, enabling the retail offer to

contribute to a sense of identity and belonging inherent in the consumer.”

As we saw earlier, the luxury and discount markets

have grown relative to the middle over the decade.

The shift of consumers trading down on some

purchases and trading up on others has been

developing steadily and has been recently accelerated

by the recession. The line-up of retail administrations

during this period were largely mid market brands

such as Morgan (France) and Zavvi (UK).

The top 25 global brands by sales include Wal-Mart,

Tesco, Amazon and Ikea and in total they operate

from 38,000 stores in 71 countries.

Analysing these brands it is clear that they have

become most successful because they have been

able to appeal to all socio-cultural groups. Niche retail

has its place and as we know the luxury sector has

seen growth over the decade, but the big winners –

Tesco for example – have realised that big surfaces

and a diversified offer allows them to have a wide

customer base. Meanwhile, through direct marketing

they are almost able to create the illusion of one to

one marketing, and therefore communicate different

sets of values of the brand to different people.

Elsewhere, we have also witnessed an increase of

brands trading direct to the consumer via standalone

stores – Apple and Nokia for example – breaking

down traditional supply chain boundaries. This not

only provides increased recognition for the brand, but

opens up an additional revenue stream.

The pop-up store concept is another more recent

trend that was predicted and helps create increased

brand recognition, although the reason behind the

acceleration of this trend is rooted more in the real

estate dynamics during the recession i.e. increased

supply of cheaper leasable space. Nevertheless,

and drawing on our comments from ‘Brand as a

Belief System’ in Section 1, a strong brand has

become increasingly important for any retail business

and they have developed as powerful guides to help

consumers navigate their choices.


26 • Jones Lang LaSalle Retail 2010

Reviewing our predictions about the impacts of these trends on retail and retail property

An Holistic Approach

What we said: “With leisure time scarce and rewards from service provision

high, new holistic formats are emerging that provide a ‘soup to nuts’ menu of

products, services, information and advice for one lifestyle area.

Retailers are recognising that supplying new services to an already

existing consumer base is a means of securing loyalty through better

fulfilling consumer demands.”

We noted earlier a shift in the total economy towards

services. The core competencies of retailers, meanwhile,

have continued to shift and many now have diverse

revenue streams beyond selling physical goods. This

largely capitalises on growth in the service economy

which has continued to develop as predicted.

The big winners in this area have been the

Supermarkets. Over the decade, they continued to grow

their financial services offer and expand into areas such

as child registry, telecoms and even optometry.

Elsewhere, HMV in the UK adapted to the softening

demand for music purchasing but increased demand for

the retail ‘experience’ by diverging into the live cinema

and music industries. And Decathlon’s Oxylane Village

concept brings together sporting activities, retail outlets,

services and events all on the same site.

Increasing retail saturation has meant that, gradually,

retail businesses are having to grow beyond simply

selling products. The recent recession has compounded

this trend through accelerating the consumer thoughts

of ‘what do I need’ vs. ‘what do I want’, bringing reward

for those retailers that offer a little extra or different.

The big winners

have been

the supermarkets


27 • Jones Lang LaSalle Retail 2010

Summary

Summary

Change is coming.

Are you ready

Our review of the Retail 2010 Report has revealed how far it is

possible to get a grip on the future.

Out of ten socio-economic trends identified, most were prescient.

We talked about polarisation of markets, globalisation, shifting

demographics, changing lifestage pattern, the move to services,

ethical consumption, experience society, brand dominance and car-borne

transport. All proved to be dynamics in the market. The one exception

was our prognosis about consumer apartheid which has not really

played out in the consumer’s mindset.

Meanwhile, in terms of retail impacts we were right to talk of retail

cross-border expansion, experiential retailing, new tourist retail

locations, new leisure anchors and an integrated holistic approach

to retail (goods, services, brands, experiences).

In sum, we are proud of our foresight process and the results

it yielded. We have carried this experience into our Retail 2020

exercise – where we anticipate more and deeper insights that

will help anticipate and plan for the future. Time will tell!

If you have any questions about this

report, please contact us at:

Paul Guest, Head of EMEA Research

+44 (0)20 3147 1925

retail2020@eu.jll.com

www.retail2020.com

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