By Susanne Osadnik
Resilience. This term has never been used as often before as right now. Derived from the Latin word that generally means “to bounce off”, it stands for the ability to develop a certain tolerance for blows of fate on a mental level. This is exactly what we need today: in our everyday lives, our jobs, in business, and also in retail.
From center managers to retailers and landlords–they all implore the resilience of shopping centers. Shopping centers around the world lost billions in the past weeks due to rent losses and business bankruptcies. Fashion labels are fleeing towards financial protective shields or take up massive loans, while luxury labels like Armani, Gucci, and Prada are mass-producing face masks instead of haute couture. How is one supposed to look towards the future and be resilient under these circumstances?
Changing use of retail areas–even without Covid-19
Even though stores have reopened by now, it is clear to see that nothing is like it was before the corona crisis: Customers are hesitant and withhold their spending. Hygienic measures deter some visitors just as much as wearing these annoying masks. Several restaurants and bars in centers remain closed because it is not economically feasible if they are only allowed to use 50 percent of their tables and chairs.
This begs the question, in which ways corona will permanently change these centers. Which tenants will survive this situation? What can be done with vacant areas? What will the industry mix look like in a few months? These questions affect all operators equally, as these problems are as international as the tenants in most of the shopping malls–even though they are not necessarily new, as Redevco admits. Even before corona, the Dutch real estate investment company, which has several retail properties in its portfolio, has been very much aware “that the use of retail areas as we know them is changing, and that we see in our assets that functions are shifting. This trend is not particularly tied to Covid-19…”
Shopping center operator ECE manages 195 centers all across Europe and they believe it is yet too early for long-term oriented analyses and plans. “One cannot yet say exactly how the corona crisis as a whole will affect the industry mix,” says Joanna Fischer, Director Center Management at ECE and Member of the ACROSS Advisory Board. “We are currently focusing on finding joint solutions with tenants and owners, which will allow as many tenants as possible to continue.” The experienced retail expert believes that insolvency protection proceedings, like the ones that are currently on the way for Esprit and other fashion chains, are no reason to automatically assume that they become insolvent. In fact, it could be an opportunity for realignment and adaption to current and future challenges.
Fashion industry in danger of losing its role as the centers’ spine
Esprit has the same opinion. The fashion group has been tinkering with its retail concept for years; closing stores, reducing staff. Corona was a further hit that came at the wrong time. The insolvency protection proceeding is a kind of lifeline. For example, it provides the opportunity to get out of the stores’ leasing contracts within three months. It is not yet known how many stores will be closed forever. However, what is clear is that there will be substantially fewer stores this summer, when the group intends to present its sustainable premium-casual-life-brand.
Over the past years, the textile industry has been receding in the stationary retail sector and focusing more and more on online retail. “Last year, we already generated only 70 percent of our fashion revenue in the stationary sector, and this trend still continues,” says Lars Jähnichen, Managing Director of iph Handelsimmobilien GmbH. “Corona accelerates a process that has already started some time ago. What is truly disastrous about this development is that it weakens the industry, which was basically the spine of our shopping centers in the past.”
Due to the fashion industry’s forecasted losses of 20 to 30 percent as a result of the corona crisis, retail real estate expert Jähnichen believes that many tenants will break away and tear gaps in centers, which will be hard to mend in the foreseeable future. He predicts that “quite a few second or even third floors in centers will no longer be used for retail. Hotels, co-working, and residential uses could be feasible alternatives.” However, these alternatives will not work everywhere, as these uses cannot be used as passe-partout solutions. “Each center has to find its own individual solutions,” says Jähnichen.
New concepts, lots of potential for innovation
Joseph Frechen also agrees with this assessment. The Head of Retail at bulwiengesa, a consulting company for the real estate industry, is certain that the corona-effect will accelerate the retail sector’s structural changes. “A part of the retail revenue that has shifted to online retail during the shutdown will remain permanently lost to stationary retail,” says Frechen. As a result, rents will decline. “It remains to be seen to what degree the crisis will affect rents in the retail sector.”
Whereas something else has already been clear to the trained businessman: “We need new concepts and a lot of potential for innovation, which will surely find its way, particularly alongside an extensive pop-up culture. These are the future challenges for center and asset managers, now more than ever before. Nobody will be able rest on their laurels of a stable cash flow over longer periods of time.”
However, this will no longer be possible anyway if shopping centers turn more and more into typical operator-run properties. Retail experts see opportunities for centers, for example, in an industry mix that is geared more towards local and regional offers. “This is an opportunity to highlight the extraordinary, the things that stand out in everyday life and cannot be bought or ordered anywhere else,” says Frechen. International chain stores could focus more on major locations and would still reach all of their customers due to their online business.
Now it is necessary to be creative. Many retailers and center operators have already proven that this can work. While everything was shut down, 240 stores in Hamburg launched the “Altona bringt’s” (“Altona is bringing it”) initiative and created a platform where customers could select and order their goods at any time and have them delivered to their homes–major players and local shops worked hand in hand for this initiative. The management team of Ulm’s Blautal Center launched Germany’s highest drive-in cinema on the center’s park deck. Since mid-May, they already have two screenings per day. Especially family and afternoon screenings are currently increasing frequencies there after the lockdown.