At first look, retail in Europe’s largest economy seems to be suffering amid the rise of e-shopping. More and more people prefer to complete errands online from home than dive into the rough-and-tumble of crowded shopping malls, long lines and unfriendly service.
Shopping malls that opened recently such as the luxury Skyline Plaza in Frankfurt, and the Bikini House and Mall of Berlin in the German capital, have been met with skepticism.
“Who needs another shopping center,’’ some have asked, especially when, as is often the case in Germany, the lineup of stores is often the same – a big department store retailer like H&M or Zara, an electronics outlet like Medi-Max or MediaMarkt.
Shopping malls date back to a time before Christ was born. Oliver Samwer, Co-founder of Rocket Internet
The outlook in Europe’s economy also seemed to dip after Germany’s largest department store operator, Karstadt, filed for insolvency in 2009. The chain, now in its third owner in as many years, continues to struggle amid downsizing and a series of rescue plans.
Then there’s Germany’s resurgent e-commerce sector, led by its online king, Rocket Internet co-founder Oliver Samwer, who became a billionaire last year thanks to a series of e-commerce websites around the globe designed to replace traditional stores.
Mr. Samwer has long predicted the demise of traditional retail in Germany and elsewhere.
“Shopping malls date back to a time before Christ was born,” he said at a retail summit in Paris last year.
But appearances may be deceiving.
The German retail sector, experts say, is not dying. It’s only changing, and will reemerge stronger than ever – basically because shopping is a tactile, social experience, one that cannot be replaced by the efficient click of a computer mouse.
“There is more to shopping than just buying new trousers, people want to experience something when out and about,” said Dirk Wichner, the head of retail leasing at Jones Lang LaSalle, a U.S. financial and professional services firm specializing in real estate with a German headquarter in Frankfurt.
Mr. Wichner, who is based in Berlin, said that demand in commercial real estate didn’t weaken in recent years. On the contrary, this year he has 1,500 active requests from customers in the sector, up from 1,300 in 2014.
“I don’t see that there will be abandoned properties in 10 years’ time,” he said.
Overall, consumer confidence in Germany is very strong and rose to a 13-year high in February, according to German market researcher GfK.
But online shopping, which is increasing even faster, is chipping away at the retail business. In Germany, online shopping increased to 11.2 percent of total sales from 7.3 percent in 2009, according to the German Retail Association.
By comparison, the number of square meters available in Germany for commercial real estate increased by around 11 percent to 123.1 million square meters in 2013, up from 109 million square meters in 2009.
We see a clear shift and preference for prime real estate in city centers and away from the periphery. Dirk Wichner, Head of retail leasing at Jones Lang LaSalle
Experts say storefront retailers won’t die out, but will change in scope and form.
In Germany, retailers are expected to move towards urban centers, mirroring the migration of an aging population away from peripheral shopping centers. In addition, the increase in fuel and electric costs will reduce consumer willingness to drive to shopping centers.
“We see a clear shift and preference for prime real estate in city centers and away from the periphery,” said Mr. Wichner. “People won’t be willing to drive 45 minutes anymore to take care of their shopping needs.”
Aside from these practicalities, stores will have to change to attract customers and provide an experience that is distinctive and out of the ordinary.
“Those who think about retail shopping today must be very creative and offer the customer more than just shopping,” said Selin Atalay, a professor of marketing at Frankfurt School of Finance and Management. “Shops will look more like giant showrooms and playgrounds rather than conventional shops.”
Indeed, online shopping only satisfies a customer’s basic needs. According to Statista, a website that provides data and statistics based in Hamburg, shoppers turn to online to search for lower prices, a bigger selection of products and comfortable delivery.
“As long as prices are important, people will go online,” Ms. Atalay said. “Shopping offline will become more and more a part of your social life.”
Another factor is the integration of digital and offline options in traditional shopping.
As long as prices are important, people will go online, shopping offline will become more and more a part of your social life. Selin Atalay, Professor at marketing at Frankfurt School of Finance and Management
Some consumers like to pre-select items from home and try them on in shops. Online retailer Zalando, Europe’s largest seller of clothes, recently opened two outlet stores in Frankfurt and Berlin to give its customers a chance to handle the merchandise.
“Shops will have to integrate digital into their strategy one way or the other,” said Bianca Casertano, an analyst at Planet Retail in Frankfurt, a global intelligence firm for the sector. “They need a multi-channel strategy including both physical and online operations.”
In the United States, Amazon has opened pop-up stores and collection lockers to give its online customers a walk-in experience.
The rise in online shopping is not killing the offline experience, Ms. Casertano said. While Internet purchases are booming, so are traditional specialty markets and weekly markets.
Increasingly, architecture and innovative store layouts will keep consumers coming to shops and malls, experts said.
The MyZeil shopping center in downtown Frankfurt, Germany’s financial capital, attracts customers with its glass palace-like structure, workout gym and restaurant with a panorama view, Ms. Casertano said. Other department stores and malls, such as Skyline Plaza in Frankfurt, have introduced services such as home delivery.
Child care and other entertainment will also be used to lure people to stores.
Still, the Internet is a formidable challenge to traditional shopping centers such as Skyline Plaza or Mall of Berlin, which have struggled to attract customers after opening.
“Customers are much more demanding these days,” said Vivien Becker, a shop assistant at the Guess boutique clothing store at the Mall of Berlin, with 270 stores, the largest in Germany. The mall opened – a stone’s throw from Potsdamer Platz and the Brandenburg Gate in Berlin – in September last year.
“Because of the Internet and TV, (consumers) seem to think they can get it cheaper elsewhere,” Ms. Becker said.
Mr. Wichner, the commercial real estate expert, said he wouldn’t write off malls, yet. Mall operators always re-adjust after an opening, he said, to make things work.
Even with established shopping centers struggling, such as Karstadt, Germany’s largest department store chain, Mr. Wichner has hope. Karstadt, which operates 83 department stores, has changed owners twice 2010. It was acquired in August 2014 by Signa Holding, an Austrian investor group headed by Rene Benko.
Despite the retailer’s challenges, most Karstadt locations still have potential, Mr. Wichner said. But even there, the inherent value of Germany’s largest retailer might not lie in retail, but in the country’s booming property business.
“I don’t see that as a bad investment for Mr. Benko,” said Mr. Wichner. “He now owns some of Germany’s prime real estate locations. This is an indisputable asset.”