Retailers and investors grapple with shift in city centre shopping

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Markets

The question of how to make the downtown shopping experience more attractive is taxing the minds of all of Germany's big retail names. Although the trend of declining pedestrian traffic had been visible for years, the onset of COVID really heightened the volume of the alarm bells for the future of the established retail powerhouses.

It's obviously not a problem that can be solved by the retailers alone. The overall environment in which they operate is as much a factor in their success as their specific retail offering. In recent years, countless German household names renowned for their presence on the high street have closed their doors for the last time. Even giant shopping magnets like Kaufhof and Karstadt - now merged under the Galeria brand - have only been held afloat through massive subsidies to protect jobs, and that only because of the unique 'negotiating' charms of their landlord, erstwhile Signa boss René Benko.

Ifo Institute study on consumer behaviour

A recent study by the Munich-based ifo Institute on consumer behaviour since the pandemic highlighted how German consumers have become more likely to shop close to home and not necessarily in the city centre. The Ifo research team looked at Berlin, Munich, Hamburg, Stuttgart and Dresden and found that private spending in the city centres in March 2023 was still 5% below the level of 2019.

‘At the same time, residential areas and suburbs are seeing strong sales gains,’ said Prof. Oliver Falck, director of Industrial Organization and New Technologies at the ifo Institute. In particular, where work could be done from the home office, private consumer spending increased by up to 30%, according to the study.

This shift in consumption occurs primarily on weekdays. For the study, they used anonymized data on retail sales from Mastercard, among others. Stefan Hertel, spokesman for the German Retail Association (HDE) agrees, noting that the pandemic ‘certainly reinforced the trend for people to shop more in their own neighbourhoods again’, which is continuing to hurt retailers in the city centre.

Study of city centres by James Cloppenburg Real Estate

One of those big retailers is fashion retailer Peek & Cloppenburg, which has a presence on, or close to, most of Germany's principal shopping boulevards. Peek & Cloppenburg has 67 stores in Germany, of which 20 belong to JC Real Estate, otherwise known as James Cloppenburg Real Estate Holding. The company is effectively the Cloppenburg Family Office, headed up since last year by Dr. Kevin Meyer, who has initiated a fresh study on the challenges facing city centre retailers like Peek & Cloppenburg.

REFIRE spoke with Dr. Meyer recently, along with Dr. Nikolas Müller of the EBS Business School, who carried out the study on behalf of JC Real Estate and advisors CBRE.

"People have returned to the city centres after the Covid pandemic," says Meyer. "But we shouldn't be fooled by this. Although footfall is almost back to pre-Covid levels, the purchasing power of passers-by has fallen significantly in some cases."

The amount of time people are spending in the city centres has decreased overall. Fridays and Saturdays are clearly the preferred days now for going into town, accounting for 38% of all visits. Sundays accounted for only 6% of such visits.

The study shows that well-educated young people with disposable income are frequenting city centres significantly less than before the pandemic. There are just as many people in the city centres as before, just "not the high-consumption ones", says Meyer. This means significant sales losses, and prevents the "city centre shopping socialisation" of their children, says the researchers.

The study, which surveyed more than 1,000 households, also found that that people would actually like to return to the city centres, but that they lack a good reason to do so. "We specifically surveyed households and not passers-by - who are, by definition, already in the city centre," explained Meyer.

"The city centre has changed in the course of the pandemic. To rebuild the attractiveness for different user groups, we need to invest in new, innovative spaces with new usage concepts," he says.

As a project developer with many years of experience with, among others, OFB, BEOS and MPC Capital, Meyer is convinced that the design of the neighbourhoods around commercial properties is critical in attracting passers-by and encouraging them to linger. He wants greater cooperation between traders, property owners and local authorities, given that the zones in front of retail spaces are usually publicly owned and their design is the responsibility of the local authorities.

The tracking method involved collecting GPS mobile phone data from 20 city centre locations in nine major German cities. The highly-trackable and visible GPS data shows clearly that, in addition to target group-specific catering establishments, green areas and parks are particularly popular and frequented for long periods of time.

Dr. Meyer knows full well that a lot is at stake for leading retailers like Peek & Cloppenburg and others with a strong high street presence. Both retailers and investors, such as his own JC Real Estate, have been having a torrid time of it over the last few years. In this year's first quarter alone, 27 fashion and shoe retailers filed for insolvency, including Peek & Cloppenburg itself, shoe retailers Reno and Görtz, and the aforementioned Galeria department store group.

The number of insolvencies in the economy overall also rose by 20%. The fashion industry has been under pressure for years, losing sales to online retailers, struggling with deeper losses during the pandemic, with inflation and higher costs now exacerbating the problem.

Cosmetics group Yves Rocher is closing all its shops in Germany, to name another victim. The German Retail Association (HDE) predicted back in April that a further 9,000 stories would likely be closed by the end of the year.

Emergence of gastronomy as key traffic magnet

A gloomy scenario. Not quite as pessimistic as the HDE is Iris Schöberl, managing director of Munich-based fund and asset manager Columbia Threadneedle Real Estate Partners, which focuses on city centre retail properties. Frau Schöberl has been a vocal proponent, both in her day job and through her role with real estate lobby group ZIA, in urging the transformation of city centres from pure commerce to vibrant public spaces with a broad diverse offering for visitors.

Columbia Threadneedle's recently published Highstreet Report, compiled with researchers bulwiengesa, analysed the top shopping locations in 141 German cities. It highlights the emergence and increasing importance of gastronomy in the top shopping locations, growing by 23% since 2020, and now accounting for a good 14% of all downtown retail space.

Also more visible in city centres are health-related stores, which have increased by 12.2% since 2020. Medical supply stores, up 50%; hearing and acoustic, up 32%; and opticians, up 18%. (This might underline the JC Real Estate study's findings that younger people's interests are not being fully served...).

Augsburg merits special mention in the report for creating more space in its city centre streets for outdoor eating facilities and the provision of green spaces. Also praised are the free city zones for public transport and innovative concepts for the temporary use of empty shops in the shopping area. The spaces are now available to start-ups, creative professionals and municipal organisations such as the local fire brigade. The city's mayor is quoted as saying that out of interim tenants, several have now set up a permanent presence in the city centre.