Growth in Germany
The booming economy in Germany has paved the way for specialty retail advances—most of which are managed by third-party operators.
Germany’s emergence as a country with one of the best economies in the world has set the stage for retail growth and guided the development of shopping centers and specialty retail. This is a country most often associated with car manufacturers like Daimler, BMW and Mercedes-Benz; and with the spirited Oktoberfest festivals. The German Autobahn, a toll-free, no-speed-limit roadway fuels inspiration for new generations of sports cars, and likely will facilitate the rapid growth of specialty retail from city to city in the country.
Most visitors to Germany still talk about the divided city—Checkpoint Charlie, the crossing point at the infamous Berlin Wall, and remember the wall coming down dramatically in 1989. Despite a history of two countries—East and West Germany—split by politics, today’s Germany is unified, with the same government and currency, despite having different traditions and customs. Today only remnants of the wall that had divided so many people and cultures for years remain.
The birth of specialty retail
Until about seven years ago, leasing in the common areas of German shopping centers was almost unheard of. As in the United States, in Germany, common-area leasing began with retailers bringing their own kiosks into the shopping mall. Now RMU programs across the country are slowly picking up steam. “In comparison to the United States, the specialty retail market in Germany is just building and we started our RMU program this year,” says Franka Lange, Director of Retail Operations at Retail Profile, a specialty leasing management company based in Germany, the United Kingdom and Russia. “The common area of malls until seven years ago had hardly been used for retail at all,” Lange points out.
Retail Profile broke into the central European market with a significant third-party management deal. As the sole third party partner with ECE, the leading shopping center developer in Europe, Retail Profile is set to manage specialty leasing throughout ECE’s German portfolio.
ECE manages 140 shopping centers in Europe and another 19 are under construction and planning stage. The real estate firm is experienced in shopping center development, retail leasing, center management, and development of office and transportation centers.
Viewing specialty leasing as a specific skill set, ECE uses a management firm like Retail Profile to direct and manage this segment of their business. This has contributed to the rapid-fire growth of Retail Profile’s specialty retail programs, which are flourishing with occupancy rates of 99%. Retail Profile is right now operating RMUs in the regions of Hamburg and Cologne.”We have plans to roll out over 100 RMUs in the next 12 months and we are well on track to achieve this” Lange says.
In North America, firms offering third-party management of specialty leasing, such as Sales Dynamics, cropped up in the early 1980’s. Germany is walking down a similar path. “I think this has do with the fact that there is no history and therefore no experience with specialty leasing,” Lange says. “They have the chance to get the knowledge from a professional and specialized third-party company.”
Retail Profile has been operating in the UK since 2001, as a firm offering leasing, operations and servicing of specialty retail units. In 2009, the firm was operating 222 RMUs for 14 different landlords throughout the UK. It has since transitioned from its entrepreneurial roots with founder, Julia Langkraehr to a larger organization.
In 2007, Retail Profile was acquired by Amery Capital SPV; and then was bought by SpaceandPeople. SpaceandPeople is an aggregator of promotional space in the UK and Europe; the company offers media buyers and brands promotional space in shopping centers and other high-traffic venues.
Roots in historical markets
The history of markets in German speaking parts of Europe can be traced back to the Middle Ages. The Dresden Market, which dates back to 1434 is one of the oldest Christmas markets. It only stands to reason that the German consumer is used to the concept of temporary tenants. As Lange points out, this has made the transition to the indoor mall programs easy for the consumer. “I believe [the German consumers] understand the concept very well, as it has aspects of our traditional German markets which we basically have brought indoors. Customers are curious and shop on impulse from RMUs and kiosks,” Lange says.
Shopping centers in Germany are centered downtown in established commercial districts. There are some entertainment-oriented shopping centers with bowling facilities and cinemas as anchors in the suburbs, but the larger format shopping centers are very urban.
Early successes in specialty retail concepts in Germany include fresh fruits, toys, body cosmetics, scarves, chocolates and jewelry. “All are quite classical RMU products except for the success of fresh seasonal fruits which seems to be quite German,” Lange says. Just as national brand names in the United States have specialty retail operations, Germany too, is seeing the emergence of national brands.
Retail Profile’s leasing team scouts specialty retail entrepreneurs at fairs, outdoor markets and urban districts. They also have success working with local and regional entrepreneurial organizations to increase awareness of the retail opportunities in a market.
Lange’s focus is to get specialty leasing fully operational throughout Germany over the next three years. She hopes that “with time and systems, kiosks and RMUs, specialty leasing will create a vibrant atmosphere with new trends and products available for the customer.”
Since German specialty leasing programs are in their infancy, the developer and the operator have lots of flexibility and a chance to learn from others’ mistakes.
In many German shopping centers, specialty leasing has actually a long history as seasonal merchandising events catering to holidays such as Christmas and Easter; the products have been limited to candles and seasonal products. The leases also tend to be short term, but some retailers are successful enough to warrant longer-term leases. “We see a development towards long-term merchants changing seasonal product, or merchants with multiple short term bookings within the year,” Lange says.
Lange adds that merchants appreciate the constant change of products in the common areas. She contrasts this against the United States where “people treat RMUs more like shops.”
For specialty retailers looking to expand into Germany, the language barrier is challenging to overcome. Staffing is not easy. Most Germans speak English fluently because it is taught in high schools. However, North American retailers attempting to start a specialty retail business in Germany, are advised to hire German-speaking employees because the many dialects in Germany can be tricky. “We always recommend to the operators to work with a German-speaking staff,” Lange says. Lange and her leasing team offer retailers information about recruitment companies and staffing websites. Operators’ needs are published on the center’s websites.
Lange says the U.S. specialty leasing industry serves as guide in Germany for many reasons. “We still look a lot to the U.S. market due to its maturity in specialty retail and also look for trend products there as it seems these products will come to the European market and succeed with a certain time delay.”
It appears Germany is poised for sustained retail opportunities. The country’s powerhouse economy that has so far weathered the economic crisis relatively well ensures that specialty retail is set for rapid growth.
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