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SPECIALTY RETAILERS DISPLACE TRADITIONAL ANCHORS

BY SUSAN THORNE

Department stores are losing cachet with shoppers, observers say, and hypermarket building has slowed. Increasingly, specialty retailers are anchoring projects instead.

The clamor for alternative shopping center anchors is as vigorous in Europe as it is in the United States.

As the department store’s role has declined in the North American mall mix, center managers have learned the importance of signing up the hottest specialty retailers to maintain credibility with consumers. Now European shopping centers, from London to Budapest, Hungary, are following a similar pattern, relying increasingly on trendy specialty players to play the role of anchors and attract shoppers.

Take Germany, for example, Europe’s largest market and the stronghold of the traditional full-line department store, where consumer spending habits are changing to benefit specialty stores. With shopping becoming polarized between specialty retail and discount chains, department stores are unable to fit either type, says Helmut Koprian, managing director of center management at ECE Projektmanagement, the Hamburg, Germany-based mall development firm.

“They are not particularly favorable in price and have more breadth than depth of selection,” he said, observing that Karstadt and Kaufhof, the two names that monopolize the country’s department store sector, have virtually ceased expanding.

The specialty players are also benefiting to some degree from the slowed growth of Europe’s hypermarkets, which anchor most of the suburban shopping centers on the Continent. These are approaching market saturation and are also, in some instances, bumping into planning restrictions on large-format projects.

“There are so many of them that shopping centers are now starting to consider doing without them and are looking at the H&Ms and Zaras,” said Scott Abbey, CSM, senior manager of group retail management at Rodamco Europe, Rotterdam, the Netherlands. “In Spain, for instance, the new Xanadœ does not have a hypermarket — or the new Tres Aguas.”

Shopper preference for well-defined, branded concepts is behind the trend, says Peter J. Todd, director of European retail in the London office of Jones Lang LaSalle.

“Customers are getting more focused on specialty stores, because they’re looking for a specific offer, for certain very strong brands which allow them to very much know what they’re getting before they go into the store,” Todd said. “If you’re a Saturn customer, you know you’re going to get a huge selection of electronic goods at good price points with knowledgeable sales staff at very good locations.”

There are a wide variety of such magnet retailers. They include international fashion banners, such as H&M, Mango and Zara, and electronics stores Dixons Electro World, the Pinault group’s FNAC, Media Markt and the aforementioned Saturn. Also in the anchor role are book chains Borders Books & Music and Hugendubel, as well as fashion retailers Cortefiel, Next, Peek & Cloppenburg and Pimkie.

Center developers are achieving their target merchandise mix with six or eight of these minianchors taking the place of one department store.

“You put in a strong sports concept like Sprinter or Sports Shack, maybe an electronics format, and then the fashion players,” said Todd.

Fortunately for European shopping center managers, many of the most popular retailers, particularly fashion brands, are in growth mode. Netherlands-based Mexx, for example, opened 20 new stores in Europe (including Britain) in 2003, bringing its total there to 254, while the rapidly expanding H&M has a European total of 900 stores, 45 percent of them in malls.

H&M’s popularity with shoppers makes it a natural mall anchor candidate.

“We offer a very high level of fashion with good quality at a very low price,” said Kent Gustafsson, H&M’s operations director in Stockholm, Sweden, explaining his store’s effectiveness at drawing shoppers to a mall. “Without any doubt, that is what today’s customer wants.” While dismissing the name of “anchor” for H&M’s stores, Gustafsson concedes that H&M is often a leading retailer within shopping centers and enjoys an ever-higher profile.

In France, until recently, H&M and Zara were limited to large regional shopping centers but are now entering secondary centers and even hypermarket galleries, says Gontran Thüring, leasing manager at Paris-based Ségécé.

The sluggish economies of Germany and France play into the hands of expanding retailers, Thüring says, enabling them to negotiate low rents and generous lease terms, such as the sharing of build-out costs with landlords or a reduced key money fee (the money a tenant pays to open in a center).

“It is good timing for new retailers to enter, particularly for midsized units,” he said.

In Italy H&M and Zara have made an aggressive entry and are expanding fast, although such national apparel retailers as Coin, Conbipel and La Rinascente, and book chain Feltrinelli still predominate, says Daniele Flisi, CEO of Milan, Italy-based World Retail Consulting, which serves expanding retail chains.

Even in hypermarket-anchored centers, it can be important to have high-profile secondary anchors because shoppers rarely combine grocery shopping and specialty retail purchases in a single excursion. “It is almost like two centers in one,” Thüring said. “People will come to the hypermarket, see there are Zaras and Gaps and come back when they have time for fashion shopping.”

Interestingly, as hypermarket expansion levels off, food stores are making a comeback to downtown projects, in Britain as well as some parts of the Continent. In France three recent Ségécé projects in Annecy, Boulogne and Poitiers each included a Monoprix supermarket anchor plus FNAC, H&M and Zara stores; other Ségécé projects now in the pipeline will have a similar combination. J Sainsbury, Metro and Tesco, among others, are returning to Britain’s downtowns with stores of between 2,000 and 3,000 square feet, says Jenefer Greenwood, a retail strategist at London-based development firm Grosvenor.

Store closings on the part of other retailers have freed up some attractive sites that specialty retailers are grabbing. C&A’s withdrawal from England three years ago put more than 70 stores measuring 20,000 to 40,000 square feet on the market; many of those were taken over by Next, Penneys or Zara. The closing of Marks & Spencer’s Continental operations in 2001-2002 also created leasing opportunities.

While the new specialty “anchors” add excitement to the retail mix, some also create challenges for shopping center management because of the space required for their larger-format stores. Dixons, Mango and Zara often want between 20,000 and 30,000 square feet, and both Esprit and Mexx are upsizing too. At the extreme end, British clothing retailer Next has signed for a 150,000-square-foot department store site in the expansion now under way at Arndale Centre, Manchester, England.

Rodamco’s Abbey compares this European growth of store sizes to what Gap and Limited did in the United States during the early 1990s and says it presents the same kind of planning challenges. “It forces [mall] management to look farther ahead than in the past,” he said. “Your leasing strategy becomes more long-term,” with mall managers having to anticipate the site requirements and merchandise mix suitable for these tenants.

Trendy specialty retailers have revitalized the shopping center environment and established fashion as a more important component of the merchandise mix, Thüring says.

“H&M and Zara came with really good offerings and perfect logistics, they copied designer brands and brought fashion-forward products,” he said. “Before, we had C&A, and that’s it.” Yet, the exciting brands are no longer entirely novel in Western Europe, and there’s room for more, Thüring says. “We lack new concepts and new entrepreneurs — on both sides of the Atlantic.”

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