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RETAIL REVOLUTION

From coffee to fashion, the Continent’s retail scene is converging

By Edmund Mander

Spanish retailer Mango is winning over British shoppers with a combination of high fashion and low prices.

Who are the hot European retailers? Not long ago, there would have been little consensus on that issue, given the diversity of Europe’s tastes, traditions and, consequently, retail. But with national borders becoming increasingly porous for retail chains, tastes are converging, and industry professionals from different European countries are more likely to pick the same candidates as their favorites.

Coffee illustrates this retail convergence well. Not very long ago, most of the coffee drunk in British homes — and a good bit served in restaurants — came out of jars labeled Maxwell House or Nescafé.

"It was awful," recalled Glen Barkworth, general manager at Arndale Centre, a downtown mall in the northern city of Manchester. "Absolutely terrible."

Whether the appalling coffee was responsible for the dearth of cafes in Britain, or vice versa, is a matter for debate. But Continental Europe’s cafes have long served as important destinations for decent coffee and social interaction.

However, Starbucks and other chains have recently gone a long way toward curing Britain of its addiction to lousy coffee. In 1998 Starbucks established a bridgehead in Europe by buying Seattle, a British-based chain of cafes, and by last year the company had 128 locations. Other coffee chains, notably Coffee Republic and Cafe Nero, also have been teaching the British the virtues of fresh-brewed coffee. Now, ironically, Starbucks is poised to bring the rest of Europe up to speed with Britain, with plans to expand into five, so far undisclosed, countries on the Continent.

All of which has put Starbucks-style coffee bars on the hot list of several retail experts. Another irony is that inspiration for the American coffee chain came from Europe, Italy to be exact, where espresso bars line every corner of the major cities.

Swedish apparel chain H&M, along with Zara and Gap, is considered to be a must-have retailer for leading French shopping centers.

Starbucks will be a hit in Continental Europe (probably even in Italy), predicted Jonathan Hallett, a specialist in international retail who recently became head of retail at commercial property firm Healey & Baker’s office in Prague, explaining that the company has followed a tried-and-true route for American companies eyeing Europe by first opening in Britain.

Meanwhile, Continental Europe is returning the compliment by exporting a handful of its own retailers, all of which have included the United Kingdom in their expansion plans. Zara, Mango, Sephora, Ikea and Hennes & Mauritz (H&M) topped the favorite store lists of several experts from various countries. "They’re having quite a big impact," Hayley Myers, director of retail research at the London-based Retail Intelligence consulting firm, said of Zara and Mango, both from Spain. While the two retailers arrived in Britain only comparatively recently, they are winning over British shoppers with their combination of high fashion and low prices, observers said.

As well as orchestrating a substantial expansion in recent years — Zara’s presence in Europe had grown to 942 stores by the beginning of this year — the retailer also has subtly tailored its stores to suit different markets, Myers said.

"If you look at the stores in different countries, you will see a different look, a different image," he said, opining that the retailer’s New York City branch is slightly less fashion-forward.

Mango and Zara are in Bluewater, the mall outside London considered by many to have Europe’s most impressive selection of cutting-edge retailers under one roof. And while they still only have relatively few stores in Britain, "they’re going into 100% prime locations," Hallett said.

Thanks to the two retailers’ affordable price points, "You can dress well, and you can go back and dress well again," said Barkworth, who also rated the pair highly. These and other chains have completely shaken up the hitherto highly structured British fashion establishment, he said, describing how a few years ago upscale shoppers went to stores like Harrods, while Marks & Spencer dominated the middle market. Mango’s appeal extends right across Europe, scoring with young people in the former Communist bloc, somewhat at the expense of Marks & Spencer, which has invested heavily in that region, observers say.

Swedish home furnishings chain Ikea opened this location outside Moscow last year.

Hungary is no exception.
"The people with any money here tend to be under 35," noted Chris Bennett, the Budapest-based chairman for real estate services firm DTZ International’s Central and Eastern European division, explaining that this is the age group with the education and foreign language skills to succeed in Hungary’s new capitalist environment.* Winning high marks for their store design, Zara and Mango also were among the picks made by Marie Christine Solal, who heads the renowned Paris-based Jean-Louis Solal Investissment mall development firm founded by her father.

Solal said she likes Sephora for the same reason — plus the fact that, unlike in American cosmetic retailers, she is not chased around the store by perfume-squirting sales clerks.

Sephora’s interiors are "very stylish," agreed Myers, of Retail Intelligence, putting the retailer in a class of its own in the cosmetics and perfume category. "It’s something very different; there’s no comparison."

The first Sephora, a division of Mo‘t Hennessy Louis Vuitton, (LVMH) opened in Paris in 1993, and now it has more than 200 locations in Europe, as well as five in Japan and more than 60 in the United States. More recently it has set it sights on Poland, Greece and Turkey, Hallett observed.

The chic and cheap H&M continues to impress retail experts across Europe, as well as in the United States where it debuted last year, for its appealing merchandise and efficient distribution network.

"H&M is certainly the strongest retailer among the big units and anchors in France, and in Europe as a whole," said Gontran ThŸring, leasing director at SƒGƒCƒ, the Paris-based developer. "They are well organized, and it’s really a very aggressive company."

H&M of Sweden — along with Spain’s Zara and Gap from the United States — are the three retailers any leading French mall must have, he added. H&M now operates more than 680 stores in 14 countries, and plans to open another 100 in Europe and the United States this year.

The Swedish furnishings chain Ikea also scores highly with those in the retail industry everywhere it goes, and is proving to be a good fit for Hungary, where incomes remain relatively low, according to Bennett. Ikea’s merchandise is affordable and attractive, as opposed to the cheap and nasty furniture Hungarians and other Eastern Europeans have been accustomed to getting from local retailers. Ikea is expanding aggressively in Eastern Europe, and last year opened a location outside Moscow. It has two locations outside Budapest, and has opened near other major urban centers.

"They are astonishing, really; they manage to come into these difficult markets with good products that are cheap," Bennett said. "Other people can do cheap, but É".

But not all retailers have been as bold as Ikea in Eastern Europe.

"Obviously working in Eastern Europe, one has a different perspective from one’s colleagues," Bennett said, explaining that a list of Hungary’s most active and innovative retailers will differ from the favorites picked elsewhere.

"The leaders in our market come from grocery, big-box and young fashion areas," he said, adding that the supermarket chains Tesco, Carrefour, Cora and Auchan have been particularly aggressive. In Budapest Tesco opened two 15,000-square-meter (161,500-square-foot), 24-hour supermarkets in eight days in November.

"The cost of grocery shopping in Hungary has come down substantially because of the entry of Tesco, Auchan and Cora," Bennett said. "They’ve taken it by the throat and shaken it up."

But even in Western Europe there remain some distinctions among various markets. In Britain, for instance, cell phone retailers are fighting a pitched battle for market share, a battle Carphone Warehouse is winning so far, according to Myers.

"The products are changing quickly, and they know they have to be on every street corner," he said.

And in every mall.

"We’ve got 11 phone shops in our center alone," said Barkworth, adding that half of all British households have a cell phone. Between him, his wife and his children, Barkworth said there are four cell phones in his household.

Germany’s retail industry has been marching to the beat of its own drum, too. Several drums, in fact: The country’s retail scene has been diverse and fragmented, explained Mark Powell, a partner with Healey & Baker’s Frankfurt office, although there has been some consolidation more recently.

International chains have struggled — with the conspicuous exception of H&M — to find prime locations, he said.

"Some brands have tried to compromise, and they’ve failed," he said.

Esprit, Zara and Mango all are working hard to make inroads. In the meantime, Germany’s Douglas Group wins high marks with Powell for bringing several of its retail divisions under one roof with its new House of Beauty concept.

"It’s the first time a domestic German retailer that covers the whole market has brought all their retailers together," he said. Douglas Group’s retail divisions include Pohland (men’s fashion), Appelrath-CŸpper (women’s fashion), Christ (jewelry) and Douglas (perfume), among others.

Meanwhile some of the consumer trends sweeping Europe are apparent in Germany, too, proving that Germans are no more immune to popular international tastes than Britons were to decent coffee.

"The Germans are becoming more brand conscious," Powell said. "They’re not prepared to pay for quality without a name."

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