The iGeneration IV Europe's top 100 retailers and their real estate strategies: The store's the star - Retail Property Analyst
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The iGeneration IV Europe’s top 100 retailers and their real estate strategies: The store’s the star Retail Property Analyst: European futures series, number 6 By Mark Faithfull Sponsored by
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The iGeneration IV Retail Property Analyst: European futures series, number 6Contents 02 Executive summary The omni-channel scenario, its evolution and its potential impact on retail real estate strategies. 04 The iGeneration: omni-channel and retail real estate Omni-channel retailing has seen retailers merge all their channels, while clear trends are emerging in the real estate needs of international retailers. 12 The iGeneration: real estate strategies across Europe The impact of omni-channel retailing by geography and retail category. 23 Omni-channel retail: the basics An A-Z of omni-channel retail, social networking and digital realisation. 25 The iGeneration: the innovators The global retailers and landlords leading change and exploiting omni-channel opportunities. Innovation has always been the heartbeat of retail and the digital pioneers reflect a mix of legacy giants and start-ups. 36 Mobile retailing: leveraging location The domination of mobile-technology-based retail has enhanced online sales and supported location-based retailing, where retailers and mall owners have engaged. 47 Social networking: a commercial future? The use of social media is even more recent than online ecommerce but while Facebook and Twitter continue to dominate, a new breed of social networking sites with a more commercialised approach is emerging. 54 Future shopping and its impact on real estate strategies New technologies and cultural behaviour have changed dramatically, with further shopping shifts inevitable and the rise of catchment-based locations for logistics. 59 The top 100 retailers operating in Europe A case-by-case micro-analysis of Europe’s top 100 retailers and how they are adjusting their real estate strategies in the wake of omni-channel retail. All enquiries t +44 (0)20 8870 6388 Editor Mark Faithfull e mark@retailpropertyanalyst.com Publisher Andrew Sangster e andrew@retailpropertyanalyst.com Marketing Sarah Sangster e sarah@retailpropertyanalyst.com Subscriptions Anna Drabicka e anna@retailpropertyanalyst.com © Retail Property Analyst Ltd 2015 IMPORTANT – Unless otherwise attributed, all material in this publication is the copyright of Retail Property Analyst Ltd. Subscribers are reminded that the publication is circulated to named individuals only, on the understanding that material contained herein is not copied, reproduced, stored in a retrieval system or otherwise disseminated, whether inside or outside subscribers’ organisations, without the express consent of the authors or publisher. Breach of this condition will void the subscription and may render the subscriber liable to further proceedings. Retail Property Analyst is published by ZeroTwoZero Communications Ltd PO Box 1228, Cambridge CB1 0WS t +44 (0)20 8870 6388 f +44 (0)20 8870 6398 e info@zerotwozero.co.uk w www.zerotwozero.co.uk The iGeneration IV Retail Property Analyst: European futures series, number 6 01
Executive summary An omni-channel environment has created a literal world of opportunity for some retailers and has signalled the demise or downsizing of others. Understanding and responding to the change in retail real estate requirements requires immediate action, a rewriting of the rule books and an ability to be flexible. In producing our fourth report on the dominant retail and real estate topic of recent times, Retail Property Analyst continues to be unique as a publication positioned to consider the impact of omni-channel developments on property requirements. In each year of publication, these impacts have changed and the focus on retailing and property has altered, often quite dramatically. This illustrates the fast-paced nature of the sector and also the fact that even those at the cutting-edge continue to find their way against an ever-changing backdrop. The property industry had still been guilty of largely ignoring the issue when we began these reports – with some commendable exceptions among developers and investors – and a pervasive view has taken hold that somehow retail units and requirements would be left unchanged by the revolution of e-commerce, the proliferation of mobile-technology and the explosion in the power and ubiquity of social media. This view no longer holds sway, although it is notable that even now the conversations had by retailers on the subject and those had at property networking events differ markedly, with real estate behind on the curve. Issues seen as key by many retailers are being overlooked by too many landlords. A disconnect remains, which we hope this report plays its own small part in narrowing. Our exclusive analysis of the top 100 retailers operating in Europe, selected by a mix of annual turnover, influence and local or international significance shows a diverse picture of evolution, development and strategy. It also reveals threats to real estate through a downscaling of retail requirements – estimated by one specialist, Javelin, as a 25% reduction by 2020 – and of opportunities created through remodelling and the mobile revolution. An alternative school of thought is also emerging, suggesting that much of the online gains in areas such as technological products and catalogue-style merchandise have now been gleaned and that growth will not continue at the same level, but rather that online sales will cannibalise store sales. Perhaps the most telling testament to the pace of change in this industry is that a number of the businesses in the top 100 have changed ownership or even, in one case, gone into bankruptcy. A number of chief executives have been ousted and some major strategy changes have occurred. In all cases, the pledge to e-commerce has become stronger. There can be few, if any, sectors in any global industry where such rapid changes occur on a day-by-day basis. Consumers are now interacting with the multiple channels in an ad hoc manner. An increasing number of consumers are researching products in bricks-and-mortar retail stores before purchasing online, using click-and-collect or showrooming, a subject this report looks at in some detail although it has become less of a topic than it was in 2013. How the consumer touches the retailer or the brand differs by person, time of day, location and mood. It is why multi has become omni – the channels can no longer be treated as a series of silos, they are integrated, blended and potentially revenue capturing for those who can bring each of their channels under a clear, consistent and relevant banner. This report considers both the technological and cultural trends but also then examines how these translate across 100 top European active retailers. The analysis considers what the retailers are doing, how they are doing it and how it is impacting their real estate strategies. A number of clear trends have emerged compared with last year, notably the ongoing and now relatively long running rise in mobile-based retailing, the surge in international delivery, the strengthening of the third party delivery relationships and the downscaling in store numbers among a number of retailers, notably in the fashion sector. Click and collect has also become a vital component of location planning and few of the retailers in our listing do not offer such a service. Increasingly, landlords are also looking to such centralised services. The iGeneration IV Retail Property Analyst: European futures series, number 6 02
Executive summary continued Some indicative data European online retail sales will reach €191 billion by 2017, up from €112 billion in 2012 – reflecting an 11% compound annual growth rate (CAGR) over the next five years (Forrester) US online retail sales will hit $370 billion by 2017, up from $231 billion in 2012 (Forrester) Online sales by sales, Europe (2013): UK, France, Germany Scandinavia, Austria/Switzerland (EMOTA) Highest internet penetration: Singapore 99.9% (IMRG) Global broadband subscribers, end of 2011: 678.6 million (forecast: 2018 – 940 million) (Point Topic) Access to internet shopping: Laptop 55%, smartphone 19%, tablet 11% (WorldPay) Increase in mobile-internet sales (2013 over 2012): 138% (IMRG CapGemini) Global broadband use, 2018: 1.6 zettabytes (Cisco) Top 100 retailers in Europe, key findings 1. The UK retail market remains the most advanced in Europe in terms of omni-channel retail, with home delivery services among grocers particularly strong but with an ongoing and strong shift towards click-and-collect, especially from convenience stores. See profiles on: Tesco, Wm Morrison, Sainsbury’s, John Lewis, Asda. Dedicated third party click-and-collect such as Collect+ and Doddle are also emerging strongly. 2. France continues to pioneer a Drive format for grocery retail, with click-and-collect dedicated services at an increasing number of stores. France operates the only dedicated Drive format, using a warehouse-style dark store. Although the concept behind Drive is likely to have universal appeal across mature European markets, to date none of the French retailers have been able to run solace sites profitably. We expect to see more Drive sites as part of a hypermarket offer. See profiles on: Auchan, Carrefour, E.Leclerc, Tesco. 3. Many German retailers have come to online quite late but are investing heavily in a bid to catch up. Germany is Europe’s third biggest e-commerce market. See profiles on: Metro, Otto Group. 4. Department stores have pioneered the development of e-commerce and a number of department store retailers have changed or are considering changing their store formats, while reducing full-line store requirements. See profiles on: John Lewis, Galeries Lafayettes, Debenhams, Karstadt. 5. Penetration of e-commerce remains low in southern Europe, notably the major retail markets of Spain, Italy and Portugal. This could put retailers in these locations at significant disadvantage as cross-border retailers are increasing their international delivery capabilities. 6. Central and Eastern European e-commerce remains in its infancy and store networks will need to mature before online sales can grow. Poland and the Czech Republic are bucking this regional trend, with online retail services increasing. 7. Attempts to commercialise social networking have been largely unsuccessful but the weight of new sites suggests that a new model could emerge. This remains an ongoing issue, with legacy social networking sites being rivalled by a proliferation of start-up operations. 8. The consumer electronics, entertainment and gaming sectors have been hardest hit by e-commerce so far but there is a sense that online growth may slow as penetration of tougher categories takes place. Online sales adoption may slow as gains in ‘transactional and ‘downloadable’ product categories have largely been realised. See profiles on: Dixons, Metro Group, Darty, HMV. 9. Fashion retailers have adopted significantly different international strategies. There has been a proliferation of multiple- country delivery retailers, increasingly supported by local language websites. Third party click-and-collect partnerships are being discussed. Global growth is now firmly in the hands of the fashion retailers and not the grocers. See profiles on: New Look, Arcadia, Marks & Spencer, H&M, Inditex, Mango, Abercrombie & Fitch, Gap. 10. Mobile retail has exploded and continues to be the major focus of retail innovation, driven by smart phones and tablets. This provides some significant opportunities around place and destination, which are being adopted by retailers and increasingly by shopping centre operators. The iGeneration IV Retail Property Analyst: European futures series, number 6 03
The iGeneration: omni-channel and retail real estate Over the past decade the impact of online shopping has exploded yet its full impact on retail real estate strategies continues to unwind in a variety of directions, with a definitive model still eluding most retailers and landlords. The picture painted by our analysis of the 100 most influential retailers in Europe demonstrates that different countries, sectors and markets are being affected very differently. €350bn is the estimated e-commerce market value 2013 across Europe, up €100bn in a year (Source: EMOTA) The UK, France and Germany account for 60% of European e-commerce 78% of consumers use two or more channels to shop (Source: ATG) A cross-channel consumer spends seven times that of a single channel consumer (Source: Andy Street, John Lewis) 36% of sales will be web to store by 2020 (Source: Javelin Group) Retailers will require 25% less store space by 2020 (Source: Javelin Group) At 11%, the UK’s online spend penetration is already the highest in Europe (Source: Sponge) This report – our fourth looking specifically at all elements of e-commerce – primarily seeks to address the impact of all forms of omni-channel retailing on the bricks-and-mortar requirements of retailers operating in Europe, but as such a summary of the reach of omni-channel is a necessary starting point. What started over a decade ago as the internet as an alternative channel to catalogue shopping and physical retail has now flourished into a far more complex collection of channels. The goal for retailers is no longer to be represented in these various channels (multi-channel) but to blend them seamlessly (omni-channel). Both terms are used to mean generally the same thing. This report concludes that it is the desire to make the edges of each channel blur into each other that is driving retailers and therefore omni-channel is the main terminology used throughout. It should be noted that a number of industry experts predict that consumer expectation of ommi-channel availability will in fact render all precursors redundant and that before long the industry will return to discussing plain old ‘retail’, while meaning omni-channel retail. Consumers increasingly shop from their PCs, their phones and from tablet devices. They can shop in stores, digitally within many stores, go to a store or third party collection point where they have reserved or bought product online or wait for home delivery. Consumers can discuss, rank and recommend items using proprietary or generic social media sites and they can use stores or the internet to initiate their research and buy through an alternative channel. Most importantly, consumers are increasingly expecting these services to be available. Some products can even be downloaded direct to a consumer’s PC, tablet or phone. This complex viewing, researching and buying model has impacted certain sectors harder than others. Book selling and music buying have fundamentally shifted towards online retail, especially pure players – many of which have proved that the brand equity of legacy retailers did not stand up to competition. Consumer electronics – despite or perhaps because of the complexity of the product – has also switched heavily towards online sales. While other sectors have not seen quite the same impact, healthy online sales in the fashion business, and the creation of pure players such as the UK’s highly successful Asos, have proven that even clothing – which many analysts believed would never be a significant online seller – are suitable products to be sold across any channel. The iGeneration IV Retail Property Analyst: European futures series, number 6 04
The iGeneration: omni-channel and retail real estate continued Europe’s biggest e-tail market: UK top 20 retail websites Website Activity Rank August 2012 Rank August 2013 Amazon UK Pure play 1 1 Apple Consumer electronics 2 2 Argos General merchandise 3 3 Amazon Pure play 4 4 Next Fashion 5 5 M&S Department store 8 6 Asos Pure play fashion 10 7 Tesco Grocer 7 8 Debenhams Department store 9 9 John Lewis Department store 6 10 New Look Fashion 14 11 Tesco Direct Non-food 13 12 B&Q DIY 17 13 Asda Direct Non-food 16 14 Currys Consumer electricals 12 15 River Island Fashion 24 16 Topshop Fashion 22 17 Very Pure play/catalogue 20 18 House of Fraser Department store 37 19 Halfords Bicycle/car accessories 42 20 Source: Experian/Hitwise As can be seen from the figures above, while there has not been a huge amount of movement among the top 10 retail sites, two pure players and the hybrid Apple take up three of the top five positions. A number of new retailers have entered the top 20, while the non-food sales at Tesco and Asda are going up the ranking while grocery sales are going down (by ranking). However, omni-channel retail is also becoming increasingly influential across Europe, with all the major western European markets evolving their own versions of an effective omni-channel strategy. Similarly, as can be seen from the tables below, while Amazon and Apple, plus eBay, dominate the generic markets to varying degrees, strong legacy players have also been able to maintain very high visitor rates in their respective markets. Global online population (millions) Region 2009 2014 Increase (%) North America 259 292 12.7 Europe 415 500 17.0 Asia/Asia Pacific 645 1,033 37.6 Latin America/Caribbean 178 255 30.2 MENA 135 241 44.0 Total 1,632 2,321 29.7 Source: Forrester Research Europe has the largest e-commerce market in the world after recording 19% growth to overtake North America in 2011, according to figures from EMOTA, the European Multi-channel and Online Trade Association. The total value of the European market was estimated at €246bn in 2011, leaving North America behind for the first time on €237bn. E-commerce turnover in Europe reached €300bn in 2012 and continued to grow to €350 billion in 2013. Online retail sales now account for around 5.1% of the total value of the retail market in Europe, with 240 million e-shoppers spending an average of €1,000 each. Europe will remain the largest e-commerce market in the world and grew faster (17%) than North America (12%) in 2013. The benefits of a borderless digital market, in terms of lower prices and wider choice for consumers, are estimated to be over €200bn per year, corresponding to circa 1.7% of the GDP of the European Union. The iGeneration IV Retail Property Analyst: European futures series, number 6 08
The iGeneration: real estate strategies across Europe Estimates on the impact of real estate space requirements vary dramatically but clearly less space will be needed in the future and, perhaps more importantly, the use of that space is changing. These are factors that many real estate providers have largely failed to address or perhaps even to accept fully so far. Why sector, territory and cultural attitudes count more than technology Analysis of the omni-channel strategies of the top 100 retailers by size and influence in Europe demonstrates that far from a clear parallel between the rise of e-commerce and the requirements for future real estate portfolios, the correlation between online and bricks-and-mortar varies by sector, territory and cultural attitudes. Indeed, for all the ambitions of the world’s top retailers, comparatively few have a genuine international presence and most are far behind the global reach of the top consumer brands. Those considered a global success story by their peers tend to trip off the tongue a little too easily – Tesco, IKEA, Apple, a number of the ubiquitous fashion brands…but it’s not long before the roll call starts petering out. However, despite the problems a raft of retailers, powerful in their own markets, have had in adjusting their offer successfully to other countries, the need to establish global credentials is growing. Consider the views of a number of retailers on the topic of global growth: Norman Jaskolka, president Aldo Group International, [Canadian-based footwear retailer] said: “When we started to expand it was always with stores because the online route was not available. So we created corporate stores in London to create a strong brand identity internationally and once we had done that we franchised in other markets. What we are more likely to do now – and what I would advise any retailer starting international expansion – is to begin online with market entry and then follow up with stores.” Yilmaz Yilmaz, CEO and chairman, Koton [Turkish fashion retailer], said: “Our main philosophy has been to develop in emerging markets but we are also now looking to Germany. In truth we have probably always been a little bit scared about European entry but now as a business we feel ready.” Sagi Avrahami, CEO Funky Fish [Spanish fashion accessories retailer]: “For us the key to entering a new market is finding the right partner. The strategy is to create flagship stores and then support them through other channels.” Michael Comish, group digital officer at UK grocery giant Tesco said: “Keeping up with customer expectations” had become one of the greatest challenges and said that to do this required more than updating single services but instead “how you join them up to be simple and seamless for customers. What we want to move from is store sales to catchment sales and then to customer sales.” He also stressed that it was important that retailers leveraged what they did already and said that issues such as loyalty were even more important in an omni-channel environment. Asda executive people director Hayley Tatum said hatt all service operations had been brought under one umbrella role within Asda in order to ensure that the different channels worked in unison. “Behaviourally customers are becoming very sophisticated but where a sale goes through a store then that store is credited with it,” she said of the operational route to ensuring that store staff remained omni-channel advocates. The iGeneration IV Retail Property Analyst: European futures series, number 6 12
The iGeneration: real estate strategies across Europe continued Real estate strategies by: territory and category Unsurprisingly, the influence of online retailing is dictated heavily by the category of sales and the geographical location and reach of the retailer. Territories in brief: 1. The UK 2. Western Europe 3. Central and Eastern Europe Categories in detail: 1. Grocery 2. Fashion 3. Department stores 4. Deep discounters and co-operatives 5. Consumer electronics and entertainment 6. DIY and bulky goods Territories in brief The UK Europe’s most developed omni-channel market has produced the highest number of retailers capable of delivering overseas and some of the biggest pure players in Europe, notably fashion retailer Asos which has posted strong international sales growth and now offers multilingual transactional websites. The major grocers have aggressively adopted online and Tesco, Sainsbury’s and Waitrose have established significant home delivery services. In 2014 they were joined by Morrisons, which signed a controversial deal with specialist e-tailer Ocado. The grocers are also using their store network to attract more click-and-collect buyers for their non-food lines. The department store groups are realigning their offers to leverage online, with smaller format stores being opened or rumoured in order to create more extensive national networks without the capital expenditure or planning issues of focusing solely on their full-line formats. The consumer electronics, entertainment and bookselling categories are deeply troubled and further victims to online seem inevitable. However, in the first signs of a reversal, the leading chain Dixons has claimed that it has brought its prices down to within a few percentage points of pure players and that further cost savings will bring it to parity with pure play. However, Best Buy Europe and Comet (initially part of Kesa) have exited the market. In addition, a down-sized HMV portfolio has been bought out of administration after finally succumbing to bank covenant requirements. As a whole, the UK seems destined to require fewer stores as a result of omni-channel, with a number of fashion retailers overtly stating this as their strategy. UK landlords have begun to respond, with heavyweights Land Securities, British Land and Intu among those with extensive omni-channel strategies for their shopping centres. Western Europe If the UK is Europe’s early technology adopter, a number of the major retail markets have not been far behind, notably Germany and France. In the latter Drive, click-and-collect services have become dominant and the influence of this approach is already spreading across further markets. Italy and Spain have been far slower to adopt omni-channel and individual market issues remain, such as payment protection and fraud in terms of delivery and returns. Omni-channel has become a major driver in the fashion sector, with international expansion aided by the ability to deliver into countries where there is no store presence. However, the approach is variable and European giants Zara and H&M have been slow to expand their online offers, allowing UK and US retailers and pure players to attempt to establish market positions in other nationalities. While online buying in the major western European markets has become very popular, Spain, Portugal and Italy are notably lagging according to European Union statistics, which put online purchasing from national and international retailers at levels below those of some Central and Eastern European markets. In the more mature markets, click-and-collect is likely to have the most significant impact on retail development, with separate areas and storage issues to be addressed by landlords, plus management of traffic flow. With cross-border transactions being encouraged by the European Union, those markets which are less developed online could find themselves losing sales share to those further ahead. The iGeneration IV Retail Property Analyst: European futures series, number 6 16
Omni-channel retail: the basics Aware of the diversity in knowledge levels of omni-channel retail, the following is a quick guide to the terminology used. 3G: Mobile-network provided internet support for mobile phones and portable computer tablets. 4G: Enhanced mobile-network provided internet support for mobile phones and portable computer tablets. Industry experts predict this will provide Wi-Fi quality connection. Implementation to begin this year. 5G: Currently being developed with launch pilots expected in 2018 and offering far higher data speeds. Amazon Lockers: Delivery lockers for Amazon orders, accessed via mobile phone password. Lockers have been fitted in a number of malls and within stores, while a number of rival locker systems have been launched. Augmented reality: Technology allowing products to be ‘brought to life’ via mobile/tablet screens. Projects by Lego, Mattel and Asda are among the first retail applications. Beacons: Geo-locational system for identifying shopper position via smartphone and communicating offers or information. Bricks-and-clicks: Term for a stores plus online strategy. Click-and-collect: Online reservations system where the customer picks the ordered product up from the retailer’s store, or from a third party provider or sister retail operation. Dark stores: Supermarkets developed purely to service online orders and not available to the public. Digital posters: Display systems using digital technology in order to interact or display changeable promotional and brand messaging. Drive: French invented click-and-collect drive-thru system primarily for grocery retail. Innovators include Auchan and E.Leclerc in France and Tesco in the UK. Drones: Pilotless mini-aircraft being trialled for delivery services. E-Boutique: Term coined by Marks & Spencer to describe its digitally-enabled stores going into France and the Netherlands. E-commerce: General name for retail carried out over any online medium. Facebook: The largest social networking site, which has proven hugely successful as a medium for interaction but which is less established as a retail medium. Google Glass: Google Glass enables wearers to gain information, shop and share through internet-enabled ‘sunglasses’-like eye glasses. Home delivery: Online delivery to the consumer’s home. Instagram: Picture-based social networking site – the precursor to a number of ‘visual-based’ sites and a major movement in 2012 and 2013. The iGeneration IV Retail Property Analyst: European futures series, number 6 23
The iGeneration: the innovators continued Innovation 6: Game changing, the Apple example Consumer electronics giant Apple is expected to diversify its retail formats after testing a store-within-a-store concept in the US with both Walmart and Target. Both retailers had already been selling Apple merchandise, but the new ‘micro-stores’ will expand the current offerings and create a product experience more akin to an Apple Store. Several dozen more micro-stores are planned, though the rollout is likely to be gradual. Apple’s long-term goal is to place them strategically in rural areas long distances from the mostly urban, mall-based Apple Stores. The allure for Apple of trialling a store-in-store concept has much to do with just how fast it can expand its retail offer given the overwhelming demand. The attraction for Walmart and Target is clearly the huge foot traffic Apple products can generate and the American pilot should put European department store retailers on alert. Such has been the impact of Apple that RPA has heard from our American colleagues that in order to properly assess a scheme some incoming retailers demand to have the Apple figures taken out of the sales per square metre achieved by a mall that includes an Apple store. Little wonder, looking at the sales densities of the top 20 US retail chains by annual sales per square foot, which tend to average in the range of $300 per sq ft, with a US national average for regional malls of circa $340. The median for the best 20 US retailers is $787 per sq ft, with only Costco, Gamestop and Coach achieving figures in the $1,000-$2,000 range. The second best performer is jeweller Tiffany & Co at circa $3,000 per sq ft, with Apple stores at number one with over double that figures, at comfortably over $6,000 per sq ft. A rival project by Samsung and Best Buy hopes to take some of this market. Best Buy claims to have beaten the challenge of showrooming, noting that once in store a customer is “ours to lose” and this initiative and the introduction of specialist Samsung areas will be watched with close interest by European counterparts. Samsung has opened special concession areas within Best Buy stores and the company sees the boutiques as an opportunity to educate shoppers about its products and sell some of its less-well-known gadgets, according to Ketrina Dunagan, while on Best Buy’s side the new departments are part of chief executive Hubert Joly’s effort to focus the stores on fast-selling products and strengthen relationships with key vendors. Samsung is one of Best Buy’s top five suppliers and the companies spent several weeks testing the mini-store, where a large glass sign that says “Samsung Galaxy S” hangs over the area. Innovation 7: QR codes In 2011 UK retailer Tesco launched a trial project with its South Korean business which could revolutionise the concept of store space and which saw a huge uplift in sales in its opening weeks. The virtual store – which has seen many imitators since – played to the needs of time-poor Korean consumers, with the ‘store’ located in a subway and supported by home delivery. Tesco’s South Korean supermarket chain Home Plus operated the trial project at a subway station with facsimiles of groceries, labelled with a unique [QR] code for each product. As commuters pass by on their way to work, they can use a mobile-phone app to take pictures of the products they want, check-out, pay and have the groceries automatically delivered to their home by the end of the work day. The virtual grocery store was a hit among over 10,000 customers, with Home Plus claiming a 130% increase in online sales. In Home Plus’s virtual store, each image of a grocery item was accompanied by a quick-response (QR) code, a boxy geometric image that encodes data, the product and its price. When each code is scanned, the item goes into an online shopping cart. Customers then use their phones to pay before jumping on the train to work. The experiment is just one of the increasingly innovative ways mobile devices are being used in retail. Location-based smart- phone advertising is seen as a potentially valuable way to reach new customers. Some companies in the United States are also using indoor positioning technology as a way to guide shoppers to products and show them special offers. QR codes have been in use in Japan for some time and are now taking off in the US and appearing more frequently in Europe, especially the UK. Recent research by Scanbuy in the US showed an 800% increase in scans year on year. A QR code is a ‘specific matrix barcode’ – or two-dimensional code, which is intelligible to QR readers, which are available on most smart-phones. QR codes push the user to a website, video or other content that the creator of the code has developed. The iGeneration IV Retail Property Analyst: European futures series, number 6 31
Social networking: a commercial future? Although retailers and the big social networks have tried to link the two activities, online shopping and socialising remain uneasy bedfellows. However, a pinboard network is leading a new wave of sites that could be about to change all that. Quest continues to commercialise social networking sites Retailers and brands driving strong marketing but not strong sales Highest growth is with Pinterest, plus new host of imitators Pinterest appears most likely to connect social networking and consumer spending Commercialising social media ‘Monetising’ social networking, in the parlance of those hoping to make commercial gain out of otherwise social-based activities, has become an obsession in trying to convert Facebook, Twitter and other virtual gathering places into viable sales drivers. To date they have proved effective platforms for promotions, brand building and pr stunts, while retailers such as UK online fashion player Asos have become exemplars at managing customer relationships through Facebook, often stepping in to deal with complaints and converting their biggest critics into their loudest advocates. But when it comes to straight sales, in the same way that users appear comfortable with separating the family and friends nature of Facebook with the business contacts application of LinkedIn, social networks are not where people seem to want to do their shopping. Instead users appear to view these sites as their own spaces, in which they do not expect or welcome commercial intrusion. A survey by Custora, which looked at orders to retail web sites in the first quarter of 2013 found that just 1% of orders to retail web sites originated from social media in the first quarter of 2014. That’s actually down from 2% in the first quarter of 2013. In the first quarter of 2014, much larger proportions originated from organic search, 24%, the same as the previous year. Direct visits to the web sites were down from 23% last year; search marketing/cost per click advertising, at 20%, up from 17% last year; and email, at 18% up from 17% last year. Affiliate marketing clocked in with a modest 8%, down from 9%, and display advertising was swimming around the bottom of the barrel with social at 1%, the same as last year. Separately, 43% of retailers surveyed said that among visitors who arrived at their sites via social media, less than 1% spent any money during their visit. These findings are broadly in line with previous survey results showing that social media’s contributions to ecommerce are still negligible. In December 2013, IBM analysed sales from Black Friday and found that, while ecommerce sales rose 19.7% on Thanksgiving Day and 18.9% the following day compared to the year before, online sales from social sites contributed just 1% of total traffic to e-commerce sites. According to IBM, traffic from different social sites generated different sales figures, with shoppers referred from Pinterest spending 77% more than shoppers referred from Facebook ($92.51 versus $52.30). However, Facebook referrals converted to sales at nearly four times the rate as Pinterest referrals. Adobe’s Social Media Intelligence Report covering the fourth quarter of 2013, noted that the value of ecommerce referrals from social media is increasing – but remains fairly small. Per Adobe, between the fourth quarter of 2012 and the fourth quarter of 2013, the average amount of revenue generated by visitors referred to retail sites from social-media sites increased from $0.25 per visit to $1.10 for Tumblr, a 340% increase; from $0.27 to $0.93 for Pinterest, a 244% increase; from $0.35 to $0.83 for Twitter, a 137% increase; and from $0.71 to $1.22 for Facebook, a 72% increase. The iGeneration IV Retail Property Analyst: European futures series, number 6 47
Future shopping and its impact on real estate strategies While the implications of omni-channel retail seep into every aspect of retail, and in compiling this report it is inevitable that we have touched on many of these inter-connecting trends, the focus of our research is on real estate. As a landlord, developer or investor the impact of online retail in all its many guises is fundamental to the direction that future expansion, investment and asset management will be placed in the future. That this permeates through high streets, secondary malls, major retail destinations, distribution centres, retail parks and designer outlets underlines the all-encompassing nature of omni-channel retail. In the final section we profile each of 100 retailers operating extensively in Europe and here we bring some of these findings plus the implications in our other coverage together to consider the direct and most immediate implications for retail real estate management. Retail real estate in an omni-channel world 1. The implications of Drive and click-and-collect After home delivery, the emergence of click-and-collect has realigned the retail market. For retail property there are a number of direct impacts. Hypermarkets will get smaller as the requirement to dedicate large space to non-food diminishes as sales migrate online. However, storage will be required to fulfil orders collected in-store. Convenience stores located on local and urban high streets will continue to proliferate as they become a distribution channel for online orders, offering location close to people’s homes and places of work. Some of these stores will provide third party fulfilment. Grocers will therefore focus much of their European growth on smaller format stores, especially in high density locations. In response to lower level penetration of fresh food sales compared with general grocery items, French grocer Auchan has piloted a Drive point with a c-store selling fresh produce. Customers need to leave their cars to carry out this additional shopping mission, but they can ‘touch and feel’ the produce. In the UK House of Fraser has trialled two click-and-collect only stores with landlords Hammerson and Grosvenor. The stores are quite utilitarian and performance is understood to be mixed but modified versions of these outlets, perhaps as hybrid part- store/part-pickup location are likely to be developed by others, or new stores built with enhanced click-and-collect built in. In consumer electronics retailers are largely replacing their smaller, urban sites with larger showrooms in retail parks and on edge-of-town sites. This is likely to become the permanent future model as it allows the retailers to make significant operational savings, enabling them to compete with pure players on price. This is in part to reduce costs and in part to demonstrate a full range of products. 2. The implications of warehouse-style dark stores Distribution centres are about to go through a period of fundamental change and for landlords these represent a genuine opportunity. Fulfilment of online orders is now more complex than in the previous, multi-channel silo market, where certain centres focused on delivery to store and others on fulfilling online orders. Many retailers now operate hybrid schemes. However, especially in the grocery market, where regular deliveries to the same households are made, this model is already showing evidence of changing again. UK market leader Tesco has begun to establish specialised distribution centres around London and has invested increasingly heavily in the technology within those ‘sheds’. This makes the investment a long term play, giving landlords strong security of tenure as relocation would be costly for the retailer. In the medium term we expect to see retailers begin to evaluate distribution centre location by catchment and spend, in much the same way as a developer might evaluate the virtues of a shopping centre location. This catchment modelling may produce suitable distribution locations which are different from those their current logistics models would support. We also believe that in a further evolution a number of grocers may seek to emulate the French ChronoDrive model and allow drive-up and even limited on-site ordering. Retailers may also find this an easier way of achieving planning permission for a ‘dark store’ than opening a conventional grocery outlet. The iGeneration IV Retail Property Analyst: European futures series, number 6 54
The top 100 retailers operating in Europe Retailer Headquarters Page 1 Carrefour France 61 2 Metro Germany 61, 62 3 Tesco UK 61, 63 4 Schwarz Germany 61, 63 5 Aldi Germany 61, 63 6 Rewe Germany 64 7 Auchan France 64, 65 8 Edeka Germany 64, 65 9 E Leclerc France 64, 66 10 Ahold Netherlands 64, 67 11 Casino France 68 12 ITM France 68, 69 13 Sainsbury’s UK 68, 70 14 IKEA Sweden 68, 71 15 WM Morrison UK 68, 71 16 Delhaize Belgium 73 17 Migros Switzerland 73, 74 18 Systeme U France 73, 74 19 Mercadona Spain 73, 75 20 El Corte Ingles Spain 73, 76 21 COOP Group (Switzerland) Switzerland 77 22 Inditex Spain 77, 78 23 COOP Italia Italy 77, 78 24 Marks & Spencer UK 77, 79 25 LVMH France 77, 80 26 H&M Sweden 81 27 Groupe Adeo France 81 28 Kingfisher UK 81, 82 29 PPR France 81, 83 30 Louis Delhaize Belgium 81, 83 31 Otto Germany 84 32 Co-op UK UK 84, 85 33 ICA Sweden 84, 86 34 Dixons UK 84, 86 35 Conad Italy 84, 87 36 SPAR (Austria) Austria 88 37 Alliance Boots UK/US 88, 89 38 John Lewis Partnership UK 88, 90 39 Jeronimo Martins Portugal 88, 91 40 X5 Retail Group Russia 88, 92 41 S Group Finland 93 42 Tengelmann Germany 93, 94 43 Dansk Supermarked Denmark 93, 95 44 Kesko Finland 93, 95 45 Grupo Eroski Spain 93, 96 46 Home Retail Group UK 97 47 Apple USA 97, 99 48 C&A Europe Netherlands 97, 100 49 Darty France 97, 100 50 Oxylane France 97, 101 The iGeneration IV Retail Property Analyst: European futures series, number 6 59
Top 1 to 5 continued 3 Tesco, grocery and non-food, UK Current strategy: Tesco has established itself as the most successful and largest online retailer in the UK and operates tesco. com for grocery and supermarket sales and Tesco Direct as a non-food, online only platform. Tesco offers home delivery for its supermarket arm and Tesco Direct, while it is rolling out using its store network to offer deliveries to one of its over 1,400 smaller format Express or Metro formats. Tesco expects to double its online grocery revenue to £5.5bn in the next five years, with the retailer on the verge of a 50% market share in UK food online. Online accounts for a small proportion of total food spend across the industry at present – about 6% – but the proportion of people who shop online is much higher at around 20%. Tesco has also begun offering third party goods on its website as part of plans to develop a marketplace platform to rival Amazon. In 2012 the company started to offer plants and garden equipment from Crocus, an online horticultural retailer. The supermarket group is expected to expand the number of third parties selling items via its website with Tesco receiving a cut of the sales. In April 2013 Tesco opened an office in the bohemian London media area Shoreditch to house a team of mobile app developers. The move reflects a desire to create apps and online content to help build the digital element of the business amid a strategy placing digital as important as real estate in its growth plans. The new Tesco team is headed by mobile experience director Luke Vinogradov, who has joined Tesco from previous roles at Amazon Mobile and recommendations site Qype. The decision to create a base in Shoreditch was to position it at the heart of digital innovation and to enable Tesco to recruit top talent. Tesco is also to open an office in nearby Clerkenwell for its Blinkbox team, which is currently based in a temporary building opposite the retailer’s head office. Tesco has tasked its new digital team with identifying future trends in shopping on smartphones and tablets to help steer the retailer on where it needs to invest and will also focus on digital user experience design and software engineering for devices including mobile, tablet and connected TV. RPA Perspective: Amid the turmoil of some very poor domestic trading and the embarrassing retraction from the USA, Tesco has implemented a highly successful omni-channel strategy and its next real estate moves have focused on in-store technology delivery. Indeed, no-one should be in any doubt about how seriously Tesco is taking all things online, but the company clearly feels that the sleepy dormitory town of Cheshunt – where it has its group headquarters – is not the place to spearhead its next generation thinking. Instead Tesco has taken itself off to the talent pool around trendy Shoreditch, reflecting former chief executive Philip Clarke’s determination to recognise, as he put it, that “app development is going to be just as important as property development”. In the UK the retailer has already developed a suite of apps including those for shopping on the move, loyalty card programme Clubcard and Great British Chefs, the latter designed to teach children how to cook. Tesco is also further developing its Drive format of click and collect by car points at its supermarkets – it now operate at 150 of its stores – and has introduced F&F virtual fitting rooms and has launched digital film service Blinkbox. Online delivery is also being rolled out globally, with a number of European and Asian markets already offering the service and a commitment to achieve this across the entire group globally. Expansion is focused on smaller c-store formats and the company has been at the forefront of self-service checkouts, while it has said that the increase in non-food sales online means that hypermarkets in the future will be at 6,000-8,000 sq m rather than 10,000 sq m. Its real estate investment strategy had been leaning towards emerging markets, making online sales even more important in the UK, but weaker performance in the UK has returned the focus to its domestic sales. Tesco’s expansion programme has slowed but its refurbishment programme has been reinvigorated. Tesco pulled out of Japan in June 2012 and its US operations were sold earlier this year. In the UK, Tesco’s hypermarkets are being chopped up to include new non-grocery offers such as cafes. 4 Schwarz, limited assortment groceries, Germany Current strategy: Brand website but no transactional site. RPA Perspective: The nature of hard discounters makes an online strategy far less important than for the full line grocers. Most stores are conveniently located in neighbourhood locations. No online strategy is anticipated in the short term. 5 Aldi, limited assortment groceries, Germany Current strategy: Brand website but no transactional site. RPA Perspective: The nature of hard discounters makes an online strategy far less important than for the full line grocers. Most stores are conveniently located in neighbourhood locations. No online strategy is anticipated in the short term. The iGeneration IV Retail Property Analyst: European futures series, number 6 63
Top 16 to 20
Retailer Country Online strategy Impact on real estate
16 Delhaize Belgium Click-and-collect, Expansion planned across
convenience offer portfolio and growth of
QR trial
17 Migros Switzerland Home delivery Growth of online sales
planned after pure play
acquisitions
18 System U France Click-and-collect service Huge expansion of click-and-
earmarked for huge collect services and focus on
expansion pick-up adjacent to stores
network
19 Mercadona Spain Home delivery Home delivery service
established but retail focus
on pricing, domestic sales
and stores
20 El Corte Ingles Spain Spain’s leading e-commerce Online sales expansion
site, with home delivery, planned across portfolio but
international delivery and slowed during downturn
click-and-collect
16 Delhaize, grocer, Belgium
Current strategy: Belgian grocery retailer Delhaize Group saw sales revenue growth of 3.3% at identical exchange rates
(3.3% organic growth) in Q3 2014. Comparable store sales growth of 5.3% in the US and -5.0% in Belgium; Group
underlying operating profit of €192 million, underlying operating margin of 3.5% (4.2% in the U.S., 1.4% in Belgium). It
reached agreement to sell Bottom Dollar Food store locations and 31 Food Lion stores were relaunched under the “Easy,
Fresh & Affordable” strategy in August, with 45 additional stores following. Frans Muller, President and Chief Executive
Officer of Delhaize Group, said: “While our overall performance in the third quarter met our expectations, results were
decidedly mixed among our key regions. In the US, comparable store sales growth was very strong at 5.3%, resulting from
both continued good momentum at Food Lion and favourable, albeit temporary, competitive dynamics at Hannaford. These
positive volume trends resulted in a 10% increase in our US underlying operating profit. In August, we launched the first
31 Food Lion stores deploying our new “Easy, Fresh & Affordable” strategy.
“In Belgium, results were impacted by both weak summer trading and uncertainty caused by the June announcement of
the Transformation Plan. While we believe this impact is temporary in nature, disruptions have persisted and conditions
have deteriorated in the fourth quarter. We remain determined to make our business more sustainable in the long term
and continue to be in a dialogue with our social partners to realize this. In Southeastern Europe, we faced weak economic
conditions in our markets and deflation in Serbia, both of which have continued in the fourth quarter. We remain focused on
our store expansion plans to increase our strong and growing market positions.”
Delhaize launched its Delhaize Direct service in February 2010 and has expanded it to beyond 30 stores. The company offers
a pick-up click-and-collect service. Customers pay a deposit for a take-away basket.
RPA Perspective: Delhaize has focused on offering convenience retailing for its customers, with next-day pick up of groceries
ordered 24 hours per day. The retailer expanded the offer to more stores in 2012. In April 2012 Delhaize Group implemented
a complete overhaul of its Delhaize Direct online food offering and has pledged to continue its optimisation programme,
which will see a greater emphasis on store openings in South East Europe and Asia. The company is looking to make its
mobile shopping service featuring QR codes a permanent fixture. In April 2012 the retailer launched a pilot and set up seven
cubic virtual stores in public areas, such as in Brussels Central Station. The cubes consisted of four walls that feature QR codes
for a selection of 300 products and also provide a Wi-Fi network. Customers could pick up their order the following day at a
Delhaize supermarket of their choice.
The iGeneration IV Retail Property Analyst: European futures series, number 6 73Top 16 to 20 continued 17 Migros, grocer, Switzerland Current strategy: Migros has established a five and a half days per week delivery service for online purchases on a sliding costs scale through dedicated site leshop.ch. In May 2012 the company launched its first iPhone app to improve in-store product searches and online ordering. Swiss Migros-owned book store chain Ex Libris will close 20-30 stores within the next 18 months. Ex Libris currently operates 113 outlets and an online shop, which generates approximately 30% of the banner’s sales. Online will be one of the most important areas for Migros in the coming years, with Ex Libris to work with Digitec – in which Migros acquired a minority 30% stake in May 2013. Digitec is the largest domestic online retailer for IT, consumer electronics and telecommunications. As far as the development of Migros’ discount banner Denner is concerned, sales increased by 2.5% in the nine months from January to September 2012. The retailer will open 26 new Denner stores this year and plans to open approximately 30 new outlets per year in the future. It will also expand its new smaller-sized Denner Express discount format with longer opening hours to target inner city customers. Migros has also submitted an application to Weko, the competition watchdog in Switzerland, to revoke the conditions saying that Denner must operate independently until German discounters Aldi and Schwarz Group’s Lidl have opened 250 stores in Switzerland. Joint buying of Migros and Denner will be increased in the future. RPA Perspective: Swiss grocery giant Migros has established a well used online home delivery service. There are reports that Migros may be considering click-and-collect services, which are very popular in France, and would require stores to have dedicated areas created and additional parking. In the meantime, Migros is to roll out self-scanning with mobile devices across the country next year. Migros has been testing mobile scanning with technology from Motorola since September 2011 as well as stationary self-checkouts using different combinations, while it has also acquired a 30% stake in Galaxus, owner of non-food websites digitec.ch and galaxus.ch. 18 Systeme U, grocer, France Current strategy: French independent retailer Système U president Serge Papin said that, in a difficult economic climate, he was “pretty confident”, expecting like-for-like sales increases of 2-3% in 2013. The retailer plans to open a further 80 stores this year, increasing sales area by 100,000 sq m. For 2013, Système U anticipates a turnover of €18.7bn, representing an increase of 4.9%, excluding petrol. Systeme-U has gradually been building its click-and-collect Drive service which extends to over 500 stores. In May 2011 it acquired online grocer Telemarket. Systeme-U said that the deal fitted its strategy of becoming a multi-channel retailer. The company also claimed the acquisition will help it to account for 12% of France’s grocery market share by 2015. Telemarket will benefit from being part of the retailer in terms of commercial offer, price and communication, Systeme-U added. Telemarket recorded recorded €49m in sales in 2010, and has specialised in online grocery and food home delivery since 1985. Système U has announced that it will not enter Core following its buying alliance with Auchan. September – Stuck in a deflationary environment caused by ongoing price competition in France and sluggish consumption rates, Auchan and Système U have decided to re-assert their position on the market by joining forces on sourcing, French independent retailer Système U is forecasting that the turnover of its drive format will double in 2013 and again in 2014. The format, which turned over €250m in 2012, excluding Telemarket, is expected to generate €500m in 2013 and €1bn in 2014. Shoppers currently have the option of collecting goods ordered online at some 500 stores. This number is expected to increase to 1,000 within the next two years. Reportedly, more than 50% of sales volume with the drive format are generated by the retailer’s private label products. Papin said shoppers must expect to pay for the drive service. At present, the service is free for orders over €70 and Système U has also stated that in future it will operate very few standalone drives. The first of these to open was a 1,500 sq m warehouse located behind its Hyper U store in Les Herbiers (Vendée). Système U has developed a mobile shopping app for its grocery online shop CoursesU.com. The application is available for iPhone and Android devices and lets shoppers choose between picking up their groceries at the nearest store or home delivery. The app enables shoppers to rank similar products by price as well as price per kg or price per litre. The iGeneration IV Retail Property Analyst: European futures series, number 6 74
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