German Retail Real Estate
Investors in German retail real estate were warned at the REFIRE 2013 conference not to ‘stick their heads in the sand’ and ignore the impact of internet shopping.
The warning came from Stuart Reid, CEO of Rockspring, during a panel discussion that rejected the notion of overheating in the market.
Reid said: ‘There’s no doubt that if we close our eyes and stick our head in the sand we are going to get rolled over, because the internet is there.’
Germany came after only the US and UK in internet penetration at 85%. ‘Since 2000 internet sales have gone up by 500%. Last year alone they went up by 25%.’
What did that really mean? ‘Brick retailers have got to respond and they have got to find a way to deal with the turnover which is definitely being taken away from them.’
With book, toy and music sales via the internet already at 25% of turnover in Germany, what did that mean for investors? Reid said it would have an impact on the valuation of, for example, a shopping centre where the anchor tenant was a Saturn or Media Markt electronics store.
But Stefan Zimmermann, CEO of Acrest, said: ‘What we should not forget is that most of those companies that scare the market are not profitable.’ These included Amazon which was ‘growing and growing but made a loss last year’.
It was, he admitted, ‘quite scary’ that Amazon and Otto Group together controlled more than 50% of online retailing in Germany. But Zimmermann said: ‘Any trend has a counter trend so as online retail grows, online retailers say “Oh, we need a direct link to our customers”.’ So, he pointed out, eBay had opened a pop-up store last Christmas.
Shopping centres of ‘a decent size’, he predicted, will have quite a good time in the next couple of years. ‘There is an emotional effect, a social component in shopping.’
Shoppers trying on fashion clothing could now use changing room cams to ask their parents what they thought of their choice. It meant stores needed fewer staff to advice people.
Nic Fox, a partner at Europa Capital, agreed there was ‘a very important social aspect to shopping which will probably never change’.
He quoted a UK statistic that only 9.8% of retail turnover is on the internet ‘and it’s falling. So we mustn’t get carried away.’
Germany was perhaps behind the curve and internet shopping was still growing.
But Reid said certain sectors would be hit much harder ‘and will stay hit’.
Geza Toth-Feher, CEO of CB Equity Partners, who moderated the discussion, pointed to the loss-making experience of Ocado and Waitrose in online food shopping. He noted that Axa reported only a third of German retailers have an online presence ‘so that’s still a big number to decide otherwise’.
Reid said competition German food discounters had responded to competition from the internet. Look, he said, at the latest generation of Aldi Nord stores. ‘They are fantastic. They are almost up there with a DM [drugstores] or one of the new Edekas [supermarkets].’ Visiting the latter, he said, had become a shopping experience. ‘You don’t see the pallets anymore.’
Earlier in the discussion, Reid said retail real estate was in an equity-driven period but was seeing some of the same pricing as in the debt-fuelled boom of the mid-2000s. To the question if it was investment or philanthropy to buy German retail real estate, he said: ‘You have got to be very careful… is it your money or is it someone else’s money?’
Fox said there were two keys to success – ‘overwhelmingly to buy well and secondly to have the management infrastructure that enables the business structure to be implemented.’
Toth-Feher’s note of caution was to warn that investors ‘need to make your money going in … because sometimes you exit quicker than you think or worse than you think.’