Bettina Schragl

In-store sales and e-commerce: symbiosis rather than replacement or why shopping centres only die in the US

CBRE, IMMOFINANZ and Handelsverband presented current figures and forecasts for in-store retail space, retail turnover and online retailing in Europe at a press conference in Vienna.

The following is a summary of the main statements made at the press conference:

"Retailing is going through a transformation phase. In this type of phase, it is however always important to precisely analyse which data is available in detail, and how it can be backed up with facts", said Walter Wölfler, Head of Retail CEE & Austria at CBRE, at the start of the presentation. The aim is to use reliable figures as the basis for the future development of online retailing and in-store space.

It is a fact that: The highest proportion of retail sales by far - more than 90% - continues to be generated in-store. And nothing will change in this respect. "Online retail sales in Europe account for around 8%, with Austria and the CEE countries (with the exception of the Czech Republic) below the EU average. We expect this to increase to approximately 11% by 2023." He went on to say that while this is a large increase on a percentage basis, in terms of the absolute numbers it remains a small part of the overall total.

This can also be seen in the markets in which IMMOFINANZ is present with its STOP SHOP and VIVO! retail properties: in 2018, 92.1% or EUR 275.0 billion was attributable to in-store sales and 6.8% or around EUR 20.2 billion was from online trade. Online sales are expected to grow to 10.4% of the total or EUR 38.9 billion by 2023, while turnover from in-store sales should increase to EUR 333.2 billion, equivalent to 88.6% of the total.

And addressing a further question with which the real estate experts are confronted time and again, Wölfler stated that no, the "death" of the shopping center in the USA can't be compared with potential developments in Europe or in CEE for a number of reasons. Firstly, retail space per resident in the USA is much higher than in Europe (more than 5 sqm per resident in the USA versus 1.4 to 1.67 sqm in Western Europe and around 0.8 to 1.2 sqm in CEE). Additionally, the age and structure of retail space in the USA (for the most part built before 1970 with a high proportion of department stores) is completely different. And he shared another interesting observation: Although many outdated centers in the USA have consequently been closed down in recent years, the net amount of retail space has remained stable. "In other words, there were centers nearby, for example, being opened. As a result, in the USA to date space has not been lost, but has instead been replaced", said Wölfler.

CBRE views the following as the main drivers and constraints for online retailing in the coming years:  Firstly, the business model is relatively expensive due to the costs involved, with customer return rates playing a primary role. For in-store sales these are in the single-digit area, whereas for online sales the rate is double-digit and for textiles as high as 35 to 40%. Another factor is the Millennial generation, which grew up with the Internet and has increasing purchasing power. Nevertheless, up to three quarters of respondents in surveys state that they want to continue to shop in physical stores. Conclusion: "An expansion rather than a substitution process is occurring." In CBRE's view, on the other hand tech players such as Amazon, which have developed extensive market power, constitute a clear driver of online business. 

It was highlighted that Austria has one of the highest levels of retail space and retail revenues per capita in Europe; this should remain the case due to anticipated population and income growth in the coming years, with the amount of space consequently expected to stabilise at a high level. In CEE there is, however, clear potential for growth. "Despite a slight decrease of around 1% in the population over the next five years, the purchasing power relevant for the retail trade will continue to rise significantly", was CBRE's conclusion.

All four of the sectors examined - food, clothing, cosmetics and furniture - will consequently see robust growth in demand for space in the CEE region in the next five years. "The retail market in Central and Eastern Europe will grow substantially - both in-store and online. An almost 6 % increase in the space devoted to food and to cosmetics is not something to be dismissed", confirmed Rainer Will, CEO of Handelsverband.

What are the current trends in CBRE's view?

  1. Retail formats geared toward discount and convenience products (such as retail parks and local shopping centers), as these are virtually unaffected by online trade
  2. The experience factor, whereby shopping becomes a leisure activity
  3. Omnichannel: as a result of which an even stronger symbiotic relationship between in-store and online retailing is expected

In this context, Wölfler also addresses the so-called "halo effect" in retail: "In the course of our advisory work, we have seen time and again that when a store opens in a particular area, online sales in the sector concerned also rise as a result. If the store, on the other hand, is closed down, that also has a negative effect on the online sales." He quantifies the effect (in both directions) as being between 25 and 30%.

Gerald Grüll, Head of Retail at IMMOFINANZ, emphasises that IMMOFINANZ factored the changes in online retail business into the development of its brand strategy and the structuring of its portfolio. The Group, which currently has 80 STOP SHOP retail parks and ten VIVO! shopping centers, consequently focuses on local sites in Central and Eastern Europe. It is also typical of the offering that many tenants are discounters or local suppliers, so that delivery costs including free return for the consumer are generally higher than the cost of the product.

"The numbers confirm that our strategy is the right one: The turnover of the retailers in our properties grew by 5.6% in the last financial year. We are therefore outperforming the overall in-store retail trade in these countries by around 40 %", said Gerald Grüll, Head of Retail at IMMOFINANZ. "With our retail formats we are not only present in regions where shopping center density is significantly below the level of Western Europe, but we are also located in the so-called 'last mile' to the customer. This enables us to also support our customers in the development of click and collect offers."

Another advantage of IMMOFINANZ's highly standardised retail formats: it is not only the shoppers who benefit from very good value for money, but also the retailers. "Thanks to our positioning in the convenience segment and the high degree of standardisation of our properties, we are able to offer very attractive rental and operating costs. This in turn enables retailers to exploit additional market capacity with a high level of space productivity. Based on the very good demand from tenants, we plan to further strengthen our current position as leading retail park operator in Europe through acquisitions and our own developments", explained Grüll.

"The 'death' of the shopping center in the USA can't be compared with potential developments in Europe or in CEE for a number of reasons"

Walter Wölfler, Head of Retail CEE & Austria, CBRE

"The numbers confirm that our strategy is the right one: The turnover of the retailers in our properties grew by 5.6% in the last financial year. We are therefore outperforming the overall in-store retail trade in these countries by around 40%"

Gerald Grüll, Head of Retail, IMMOFINANZ