Retail began to transform well before the COVID-19 pandemic. It has, however, evolved a lot faster than expected and the pandemic has created a whole new environment that all market participants have to learn to navigate. Cushman & Wakefield has issued its latest report “Is Confidence Returning to the Retail Market?” highlighting what the retail market looks like from the perspective of tenants, landlords and customers.
Expectations of consumers in the pandemic era
Cushman & Wakefield’s survey carried out in June 2021 has confirmed that shoppers do not want to give up on brick-and-mortar shopping in retail parks and shopping centres, but their preferences have changed to some degree. Around 50%-60% of the survey respondents say that despite the pandemic the frequency of their retail trips will remain the same as before.
For consumers, F&B outlets such as cafés, ice-cream and cake shops or restaurants are the key element of the retail experience in addition to shopping. On account of the pandemic, the frequency of their visits to such facilities has fallen by just around 3-4 percentage points. Cinemas are also high on the list of priorities, while working zones and fitness clubs in shopping centres are the least often used by customers.
According to respondents, major inconveniences of the trading limitations caused by the pandemic included the inability to shop in their favourite stores, access F&B facilities and spend free time pleasantly, meet friends, or to go to the cinema. More than half of the respondents found such retail restrictions inconvenient, with only 14% saying the contrary.
The key motivation for respondents to visit shopping centres and retail parks was an opportunity to touch, feel and try on a product before purchase. Shoppers were also attracted to shopping centres by special offers and cut-price bargains.
However, during their first visits to shopping centres following their reopening, shoppers noticed that prices had risen considerably (55% of respondents to the survey) and that some stores they knew and visited had disappeared altogether (26%). As many as 37% are still uncertain about the impact of these changes on their preferences. This group of shoppers is at the highest risk of shifting to online shopping if they feel that they lack a positive experience in brick-and-mortar stores.
“Research has confirmed that giving customers a sense of personal safety by operating under strict hygiene protocols was among the most important factors in retail during the pandemic. Before the pandemic, Poland’s online retail penetration rate (the share of total retail sales) stood at around 5%-6%. Due to successive retail restrictions and many weeks of a blanket ban on brick-and-mortar retailing, Poland saw its online retail penetration rate reach the all-time highs of 11.9% in April 2020 and 11.4% in November 2020. However, as pandemic restrictions were eased, consumers returned to brick-and-mortar stores. More than half of them admit that they shopped online more frequently when the restrictions on physical retailing were in place,” says Małgorzata Dziubińska, Associate Director, Consulting & Research, Cushman & Wakefield.
From the perspective of retail tenants
The second part of the report presents the findings of Cushman & Wakefield’s survey conducted among 50 retail tenants over the past 12 months. The survey respondents represented all retail market sectors including fashion (20%), homeware (15%) and services (10%).
68% of all the surveyed tenants were subject to a blanket ban on trading during successive lockdowns, 24% - to a partial ban due to the pandemic, and the remaining 8% were not limited in their operations at all.
“There is light at the end of the tunnel as shoppers have returned to shopping centres. Retail tenants are now aiming to see sales return to where they were before the pandemic. 85% of tenants were hard hit by the pandemic, whose key consequences included lower turnover levels, staff laid off, downsized store portfolios and difficulties caused by supply chain disruptions. As many as 53% of the surveyed tenants admitted that they had had to close some stores permanently due to the pandemic or for other reasons. A vast majority of stores closed (81%) were in shopping centres. During lockdown restrictions, 73% of tenants turned to online retailing, 11% relied on click & collect, and 9% sold through social media,” comments Beata Kokeli, Partner, Head of Retail Agency Poland, Cushman & Wakefield.
85% of the surveyed respondents were hard hit by the COVID-19 pandemic - consequences most often included lower turnover levels (70%), staff redundancies (33%), downsized store portfolios (25%) and difficulties caused by supply chain disruptions (20%).
Despite the market uncertainty, a vast majority (92%) of the survey respondents intend to carry on with their expansion plans. All of these retail tenants are firmly committed to bricks and mortar, but 51% of retailers have also decided to build or strengthen their online presence,” says Anna Oberc, Associate, Retail Agency Poland, Cushman & Wakefield.
Retail landlords
The interference of lawmakers in the relationships between tenants and landlords has not solved any problems but has driven an unnecessary wedge between them. Despite the chaos and confusion caused by successive lockdowns and restrictions, both parties began to talk about solutions irrespective of the Anti-Crisis Shield and agreed on annexes with reduced rental rates in close to three-fourths of cases. This shows that there is no need for any external interference in a system that appears to be self-regulatory. Contrary to what was previously thought, landlords are not focused on ‘fighting’ the system. More than 59% of the respondents (per GLA) say that they will not take any court action against the State Treasury and this decision stems mainly from their internal policies (25%). On the other hand, the owners of 29% of the surveyed GLA is already planning or are expressing an interest in joining a class action.
The analysis of retail footfall and turnover has importantly revealed that conversion rates have increased during the pandemic. The conversion was higher than before the pandemic for 53% of the respondents (per surveyed GLA) or remained largely unchanged for 18%.
“The survey of retail landlords conducted in May, June and July 2021 shows that their turnover held firm or increased compared to 2019 for 51% of the surveyed GLA. Another 21% of the respondents reported a decrease in turnover of between 10%-20%, while 28% recorded a drop of more than 20%. These levels of decline varied mainly by location and retail format. Our observations have revealed that convenience shopping centres and retail parks where retail dominates are performing a lot better. The hardest hit are those in tourist or business destinations and large university cities. The same holds true for retail schemes with strong leisure and F&B component. Retail facilities serving a local catchment have, however, emerged unscathed. Another sector that has pulled through the pandemic crisis quite well is outlet centres. The owners of close to 150,000 sq m of GLA say that their average footfall levels were down by not more than 20% compared to 2019, with a similar decline in turnover. Each retail scheme reported an increase in conversion rates,” says Paulina Bauer, Head of Retail, Asset Services Poland, Cushman & Wakefield.
Looking ahead, landlords will focus on additional customer amenities such as loyalty programmes, apps for navigating inside buildings or car parks, as well as convenience solutions. Digital spend will also rise. Tenants, on the other hand, should attempt to align retail formats, store sizes and solutions with their goal of driving sales over the coming months. Customers relying on omnichannel for their needs to be fulfilled will continue to visit shopping centres but will tend to make ‘needs-based retail trips.
“The pandemic was undoubtedly a challenging time for retailers but also a ‘stress test’ that provided a clearer vision of retail sector development in the coming years. The retail concepts that will be the champions of the future are now being forged. The positive news from the occupier market that’s been highlighted in this report should also be followed by an improvement in investor sentiments towards shopping centres,” says Aleksandra Sierocińska, Senior Investment Surveyor, Capital Markets, Cushman & Wakefield.
