Poor outlook in Germany for factory outlets as ratings slip

No German outlet ranked in Europe's Top 20 in latest Outlet Centre Report

When it comes to having a retail presence in Europe, Germany's shopping centres are usually in the focus of big retail brands vying for the most desirable stores. But in one subset of the retail sector - factory outlets - Germany is a real laggard.

Not one German outlet makes it into the Top 20 in the latest Outlet Centre Performance Report Europe 22, produced by Wiesbaden-based retail consultancy Ecostra and French research group Magdus. This is a sharp deterioration on last year's performance, which saw all 13 German outlet centres gaining an "above average" rating, with the top three taking places 10, 11, and 12 in the Top 20.

For the first time, the Cheshire Oaks outlet south of Liverpool came out on top, displacing long-term incumbent Bicester Village near Oxford. It is followed by Designer Outlet Warsaw, owned by a Deutsche Bank fund, and Serravalle Scrivianear to Genoa. With 38,000 sqm of leasable space, Cheshire Oaks is one of the largest outlets in Europe.

Why does Germany perform so weakly? Despite brand manufacturers saying Germany is the country where they most want to have store outlets, their centres simply aren't getting good marks from tenants, with tenant satisfaction declining in the latest ratings.

Outletcity Metzingen (28th place) gets the best marks with 2.27, followed by Ochtum Park Outlet Center near Bremen (2.31, 31st place) and Zweibrücken Fashion Outlet(2.34, 33rd place). Fashion Outlet Marl is the first centre from Germany to be the holder of the wooden spoon.

Thomas Terlinden, project manager for the report at Ecostra, said: "Outlet sites such as Metzingen, Ingolstadt, Wertheim or Zweibrücken have previously achieved high rankings, have even been the European front-runners in some categories. Now they suddenly find themselves in the middle of the pack."

"We are still puzzling over what could be the cause of this general deterioration of the German centres in the tenant rating. However, we would also say that apart from Marl, not a single German centre was given a really critical rating."

Joachim Will, owner and CEO of Ecostra, added: "The 'Fashion Outlet Marl' is a hybrid concept between a classic shopping centre and an outlet centre. With the integration of outlet stores,an attempt was made to revitalise this centre, which had fallen into crisis. The 'Fashion Outlet Marl' has enormous potential in the catchment area, but had a sub-optimal start in the middle of the Corona pandemic and has since suffered from frequent tenant changes."

Staff shortages also appear to be playing a major role afflicting many German and European centres, perhaps partly because of their sometimes isolated locations. "The staffing problem is so serious that almost two-thirds of respondents are in favour of temporarily reducing the opening hours of their outlet stores," said Caroline Lamy, head of the study’s co-researcher Magdus.

The lack of any grocery-anchored retailer in any of the centres must also surely have taken its toll during the heart of the pandemic, which suffered disproportionately from the forced closing of the centres and the subsequent collapse in turnover. At least two thirds of tenants had to withhold rent from their landlords in 2021, at least temporarily.

A total of 91 brand manufacturers took part in the 2022 survey, which was first launched by Ecostra in 2008. They rated the economic performance of their stores from 1 to 5 according to the German school grading system.

Germany is consistently cited by big fashion brand manufacturers as the country they would most like to open an outlet store, not only due to the fact that Germany has the highest retail sales of all European countries. With 3.8 square meters of retail space per 1,000 inhabitants, Germany is considered undersupplied in a European comparison, at least on paper. The outlet density in the two largest markets, Italy (9.5 sqm/1,000 inhabitants) and the UK (8.8 sqm), is far greater.

But it has not proven a fruitful market for developers. Getting a building permit for a factory outlet centre has proved a nightmare for potential developers, who have to fight through a thicket of legal obstacles and the massed resistance of city mayors and local municipalities, biased in favour of city-centre shopping centres and particularly averse to cannibalisation of their trade by neighbouring municipalities.

CEO Joachim Will said recently that there were currently no major new outlet centre openings in the pipeline in Germany that a big outlet operator would be interested in backing. Where there IS interest is in conversion projects from badly-performing existing shopping centres.

Speaking at the recent German Factory Outlet Congress, Ecotra's Will said: "On the surface, the German outlet market shows no particular dynamism. Below the general perception, however, a considerable dynamic is noticeable. This has its origin in attempts to reconceptualize poorly performing shopping centers or large-scale construction or furniture markets as outlets."

Political support for these inner-city projects is making it much harder to justify the arguments outlet operators need for a clear delineation between the offers of outlets versus classical retail. Such frustration at municipal planning levels, and the huge costs involved in litigation, have already seen two big players, European market leader McArthur Glen and Spanish operator Neinver, the second-biggest player, begin to turn their backs on Germany.