The widespread narrative that the future of retail is one dimensional and mainly online, is largely based on some trends within the UK and US markets.
However, South Africa and Poland are two markets showing different retail trends, revealed Craig Smith, head of research & property at Anchor Stockbrokers. “It is a simple function of supply and demand – from this standpoint the situation in Poland (and to an extent South Africa) is far more favourable for physical retail than in the UK and US.”
Johannesburg Stock Exchange (JSE) listed EPP, Poland’s biggest retail landlord, has attracted a slew of big-name retailers to its shopping centres in the past six months.
Not only does the shift demonstrates high levels of confidence in shopping malls, but also in EPP’s assets and Poland’s economy, despite the threat presented by the global coronavirus pandemic.
New stores recently opened in EPP’s portfolio include clothing and household goods dealer Pepco which has its roots in South Africa’s Pepkor. French multinational retailer Carrefour, Poland’s market leader in footwear CCC, as well as Hebe, W.KRUK, and Super-Pharm are among top retailers that kept EPP’s portfolio at a stable 96%-plus occupancy rate.
“These new openings aren’t just any stores. We are incredibly proud that leading retailers are investing in flagship stores and creating innovative retail firsts for the Central and Eastern Europe (CEE) region and the world within our portfolio of shopping centres,” added Tomasz Trzósło, CEO of EPP.
“At EPP we are open to different and pioneering concepts and excited to collaborate to find new ways to delight and serve our customers.” EPP’s co-owned Galeria Młociny in Warsaw, for instance, has become a platform for exciting retail market leadership and innovation.
Merging shopping with a mix of fashion and technology
Eobuwie, market leader in online footwear and accessories sales in CEE, is scaling its operations by building a network of brick-and-mortar stores, including its latest one in EPP’s Galeria Młociny where it flawlessly combines online and offline shopping.
It’s esize.me innovation is available in-store, where customers can make a free 3D foot scan in order to obtain shoe recommendations. By saving their scan, customers ca use it again at any time, whether shopping online or in-store where they can have their selections delivered from the back storeroom to try within three minutes.
Based on the success of the Eobuwie model, it has branched out to develop online multi-brand premium fashion platform Modivo, which is now present in 10 countries across CEE and Western Europe.
Modivo stocks more 70,000 products from some 250 brands, including Guess, Tommy Hilfiger, Versace Jeans Couture, Victoria Beckham, Max Mara, and Michael Kors.
Furthemore, it has recently invested in its first brick-and-mortar ‘store of the future’ at EPP’s Galeria Młociny shopping store in Warsaw, merging online and in-store retail.
Through this technology, customers don’t have to search rows of hangers or heaps of products to find the right size or colour, but rather use a tablet to select the items they like before they get automatically delivered to a private fitting room that offers in-room concierge service and style advice.
Favourable physical retail drivers
Shopping centres play a prominent role in Poland’s retail landscape, yet CEE’s largest economy still has low shopping centre densities of 265 sqm per 1,000 residents.
This is in contrast to recent findings by the South African Council of Shopping Centres, which reported its country’s shopping centre density at 430 sqm per 1,000 residents in 2018, when Australia and the US had 1,200 sqm and 2,400 sqm per 1,000 residents respectively and no competing high-street retail.
Adding to the appeal of existing retail stock, no new shopping centres are likely to be introduced to the Polish market in the short term.
Smith pointed out that cultural nuances and consumer preferences are also factors. To this end, it is worth noting that Polish consumers shop online when they need to, but they prefer physical in-store contact with products.
This is backed by the e-commerce share of total retail sales in Poland increasing from 5.6% in February 2020 to a lockdown peak of 11.9% in April, but reducing to near pre-COVID-19 levels of 6.1% in August.
Of course, this and consumer behaviours such as shopping closer to home are still in flux as a consequence of the current pandemic.
But, added Smith, “there is a widely held view that well-located shopping centres with appropriate tenant mixes that are in the hands of well-capitalised landlords will have a bright future notwithstanding any increase in e-commerce penetration.”
This is also true for South Africa. While the country does not currently enjoy the economic advantages of the Polish market, Smith believes there are also still opportunities in the physical retail sector in South Africa.
“One needs to be very selective and to understand market dynamics. For example, shopping centres in non-metropolitan and rural areas are, on average, holding up much better than their metropolitan counterparts.
“However, the reality is that, unlike Poland, South Africa has too many retail shopping centres. Thus, there is likely to be a divergence between suitably situated shopping centres with appropriate retail mixes that rest in the hands of landlords with favourable liquidity and balance-sheet strength, which will continue to outperform those of a lower quality, especially those owned by landlords in weaker financial positions.”
Omnichannel retail strategies will continue to prize good shopping centres
Like Poland, but to a lesser degree, South Africa is seeing online retailers adding mall stores to their sales channels. Kitchen and home store Yuppiechef, for instance, expanded its footprint to include physical retail stores in malls, citing that this will allow them to gain access to a broader market and allow the consumer to engage with the brand.
Smith noted, however, that less than a handful of online retailers in South Africa have the brand awareness and critical mass to scale in terms of a physical footprint in malls in the short-term. That said, he sees existing and established brick-and-mortar retailers increasing their focus on enhancing and expanding their online offering.
“It has become clear that brick-and-mortar retailers, and traditional online retailers, are viewing the future of retail as being omnichannel. Retail landlords with financial clout, superior tenant mixes and good assets will be first in line to benefit,” he concluded.
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