Much has been said and written about the disaster the pandemic has brought to the global retail landscape. This post highlights challenges and opportunities for retail and social life in our post Covid-19 city centres.
By August 5th 2020, 50% more stores (3,140) in the UK were affected by retail bankruptcies than in the entire year 2019 (2,051 stores). The Guardian reports footfall drops of 40% in August 2020 vs. last year. And there are still 5 months to go.
Germany, on the other hand, currently reports fewer retail bankruptcies than last year. Unfortunately this isn’t good news either, as the low numbers only result from changes in insolvency reporting legislation to prevent bankruptcies due to short-time insolvencies caused by the pandemic. As this legal change has been extended until the end of 2020, Germany expects a wave of Corona-related insolvencies early next year, and it’s forecast to be the worst one since World War II with up to 50,000 cases.
Inditex will close 1,200 stores globally while C&A, Runners Point and other chains are working on restructuring their retail portfolio. Karstadt/Kaufhof already announced the closure of 47 stores in Germany, and this time it also hits prime retail locations like Stachus in Munich, Frankfurt Zeil and Hamburg Mönckebergstraße. All these retailers operate big retail spaces, and finding new tenants to occupy them will not be easy.
What does this mean for footfall, neighbouring retailers and the social and cultural life in post Covid-19 city centres?
A question that is not new to small and medium sized cities, which already faced high street vacancies in the past due to increasing rents, a lack of relevance to today’s consumers, footfall drops, increasing online competition and increasing numbers of speciality retailers and discounters in suburb and industrial areas.
But for prime locations in metropolitan cities, where until recently landlords were used to curated waiting lists of companies interested in their retail real estate, vacancies are a pretty new phenomenon. For retailers who are struggling for survival this is no consolation. But as always, a crisis also offers opportunities and they are already underway.
Vacancies will lead to reduced rents and shorter contract durations. Not great news for landlords but good news for new and innovative retail, service and cultural projects. Fortunately, many city councils and local authorities are already working on concepts to keep or rejuvenate a diverse retail and cultural landscape in our city centres.
Semaest is a company financed by the Paris city council and the European Union since 2004. Its goal is the economic regeneration of neighbourhoods in Paris. The company purchases vacant shops, renovates them and rents them at lowest possible market price (and without key money!) to innovative new commercial concepts or helps established businesses to survive.
The famous Shakespeare & Company book store was for example rescued by SEMAEST. Le Testeur is one of its innovative concepts, a retail laboratory where pure players can run a vitality test for their brick and mortar store concepts in real terms without excessive financial investment.
The first Le Testeur was located in a premium neighbourhood with relatively high purchasing power and high traffic. Two more locations are now available in order to offer real-time tests in diverse locations with different footfall, demographics, buying patterns and purchasing power.
Wouldn’t it be fantastic if part of the billions governments spend on VAT-reductions, loans and grants for big businesses could benefit projects like SEMAEST in other countries too? The success of SEMAEST in Paris was the inspiration for a new project of the Macron government: The ‘heart of the city action programme’ provides EUR 5bn to rejuvenate business and retail in 222 French cities.
SEMAEST works perfectly for small retail spaces. But what about the thousands of sqm available from previous department stores and large chain stores? The following examples offer impulses for thriving post Covid-19 city centres.
Glocalisation, organic and ethical farming are mega-trends that are further augmented by Covid-19. Many organic farms operate stores near their farmland. But one of the many challenges they face is access to a larger clientele willing and able to pay the higher prices.
Renting and operating stores in city centres that offer sufficient premium footfall was far too expensive in the past. Thus, a lot of eco-farmers deliver their goods to conventional supermarkets or organic food retailers and hence face a similar margin gap as conventional farmers.
The Landmarkt Erfurt tries to close that gap. It is a cooperative of local eco-farmers and markets their products in a farmers market, a café and bistro and through a catering company. Consumers can join the club and become members. Members pay EUR 10 per month and get a 10% discount on any purchase and one free lunch per month.
Landmarkt is currently located north of Erfurt’s city centre. With decreasing rents in prime locations, however, an organic alternative to the illustrious Viktualienmarkt, for example in a newly vacant department store location, no longer needs to remain a pipe dream. Combine this with an urban farm on the top floor (like farm.one in NYC), and the farmers market becomes another real UVP: ultimate freshness, from farm to shopping basket in 5 min.
City DIYs and Garden Centres
DIYs and Garden Centres are typically retail formats that require huge spaces, easy accessibility for their logistics (in- and outbound), and low rents to profitably operate their stores. That is why they are often located in industrial areas outside city centres, easily accessible by car and hence depending on the individual mobility of consumers.
And this already describes the future problem of DIY and Garden Centres: younger generations want to live in urban environments. Thus, urban neighbourhoods are typically younger than suburbs and rural areas. And for Gen X-Z, owning a car is no longer a top priority.
The average rental duration of young singles as well as families is significantly lower than that of older people. As a result, they move more frequently and need to refurbish new homes at shorter intervals.
And very often they have to invest quite some time to organise a car in order to shop in a DIY store or garden centre – borrowing one from friends or relatives, joining a car sharing company or renting a car. But this means spontaneous and frequent visits of DIY stores and garden centres are not very likely.
One answer to this development are City-DIY’s and City garden centres. And with the increasing availability of huge vacant retail spaces in top city locations at affordable prices, they become a serious opportunity.
Bauhaus already experimented with DIY’s in city locations in the past and opened its first City-format in Stuttgart’s Gerber-quartier in 2016, right next to a premium shopping mall. OBI opened its city format CREATE! by OBI in Breite Straße, one of Cologne’s top retail locations. The store is a stylish, individual and innovative OBI-format focusing on DIY furniture and decorations. And with increasing availability of prime city locations it could well expand to all major German city centres.
The Covid-19 pandemic works like a magnifying glass for retail trends and developments that are already underway but remain handicapped by low availability of retail space at affordable prices in city centres.
Now is the time to take chances and make use of the opportunities!
About the Author:
Heike Blank has worked for big organisations such as VF Europe and s.Oliver but also for niche brands such as Ecko Unltd. and Zoo York in top executive positions. Her extensive experience with opening and managing own retail, partner stores, concessions and shop-in-shops in 23 countries in Europe, the Middle East and Asia make her an expert in expansion and brand building. Read more of her work here and connect with her on LinkedIn.