Retail2010

Ten years on, ten years forward

Retail 2010Review of Retail Futures by Jones Lang LaSalle 2000

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?

02 • 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.

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.


Retail 2010The accuracy of the 10 socio-economic trends 1

Retail 2010

The accuracy of the 10 socio-economic trends

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.

06 • Jones Lang LaSalle Retail 2010 The accuracy of the 10 socio-economic trends

1. Polarisation and Sacrificial ConsumptionWhat 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.”

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

0

10

30

20

40

Gini

coe

ffici

ent f

or d

ispo

sabl

e ho

useh

old

inco

mes

afte

r ded

uctin

g ho

usin

g co

sts

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

19801985

19901995/96

2000/012005/06


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.

8

4

0

-4

-8

High end

Middle market

Value

Sacrificial Consumers re-evaluate price/quality: the mid-market is disappearingSource: McKinsey, 2005

1999

-200

4 CA

GR%

(UK)


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)

2. Globalisation – a Solution to Margin PressuresWhat 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.


3. Shifting Core Competencies within the Value ChainWhat 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


4. A ‘Forever Young’ SocietyWhat 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.

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.

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. Source: Sociovision, Futures Coaching

BABY BOOMERS45-65 yo in 2010

OptimisticExpressiveConsumeristModernityDown with hierarchyBelief in ChoiceGlobalPassiveChanging destiny

BABY BOOMERS65+ yo in 2010

PessimisticConstantSaving not spendingTraditionHierarchyStatusLocalActiveAccepting fate


5. New Lifecycles and New Income PatternsWhat 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.

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.

6. Conscientious ConsumptionWhat 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.”


Conscientious Consumerism in the UK 1999-2008 – Ethical sector

0

4

8

12

£16m

FOOD & DRINK

GREEN HOME

ECO-TRAVEL

PERSONAL

PRODUCTS

COMMUNITY

FINANCE

1999 2008

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.

7. Experience Retail – Want not NeedWhat 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.”


Proportion of Service Consumption from Total Consumption, 2000-2010

20%

30%

40%

50%

NETHERLAND

FINLAND

2000 2010

SWEDEN

IRELAND

UNITED KINGDOM

GERMANYSPAIN

TURKEY

BELGIUMFRANCE

POLANDRUSSIA

CZECH REPUBLICITA

LY

PORTUGAL

HUNGARY

Source: IHS Global Insight 2009

Employment in the Manufacturing Sector

Source: Experian, IHS Global Insight 2009

0

40

80

120

20012003

20052007

2009

EurozoneUKJapan

Index vs Q42000 = 100

8. Brand as Belief SystemWhat 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.”


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.

It is evident that brands are enjoyed and loved by consumers – but do they help choices?

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

NikeIKEAAmazon

VALUE$m, 2001

7 5896 0053 130

VALUE$m, 2009

13 31712 004 7 748

CHANGE%

75100148

Source: Interbrand

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.

9. Consumer ApartheidWhat 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 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

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.

10. Cars – the ‘Love Bug’ lives onWhat 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.”


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.

2Retail 2010Reviewing our predictions about the impacts of these trends on retail and retail property

Retail 2010

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.

18 • Jones Lang LaSalle Retail 2010 Reviewing our predictions about the impacts of these trends on retail and retail property

Global Events impacting European Consumer Confidence

LEHMAN BROTHERSCOLLAPSE

COLLAPSE OF GLOBAL HOUSING BUBBLE, LIQUIDITY SHORTFALL

9/11 TERRORIST ATTACKSDOT.COM

BUBBLEBURST

-30

-20

-10

0

10

Source: European Commission, Jones Lang LaSalle

JAN 2000

JAN 2010

JAN 2008

JAN 2002

JAN 2004

JAN 2006

Long Term AverageEU Consumer Confidence Index

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.

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.”

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.


Average Annual CPI Growth % 2000 - 2010

0

2

4

6

GERMANY

FRANCE UKITA

LYSPAIN

POLAND

HUNGARY

Source: IHS Global Insight 2009

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.”


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.

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.


* 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.

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.

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

0%

CINEMAIMAX

BOWLINGBINGO

EAST WEST

Source: Jones Lang LaSalle

EXHIBITION

ARENATHEATRE ICE

SKATING

CHILDREN’S

ENTERTAINMENTCASINO

GYM/

FITNESS CLUBBILLIARD/

POOL

20%

40%

60%

80%

New and Experiential OffersWhat 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.

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.

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

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.

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.

New Types of LocationsWhat 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.”


St Pancras Station, London,

One Size Doesn’t Fit AllWhat 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.

Polarisation and the Power of BrandWhat 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.

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

An Holistic ApproachWhat 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.”


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

Summary

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!

27 • Jones Lang LaSalle Retail 2010 Summary

Change is coming. Are you ready?

If you have any questions about this report, please contact us at:Paul Guest, Head of EMEA Research +44 (0)20 3147 [email protected] www.retail2020.com

Retail2010

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