CONTENTS

PRINT THIS STORY:

CHANGE TEXT SIZE:

Capital gains

Retail is flourishing in East and West Berlin

By Susan Thorne

Ten years ago, the fall of the Wall dividing East and West Berlin was the symbol of German reunification. Today, the united city of 4.6 million is re-inventing itself as the new German capital (the government seat will relocate from Bonn this summer), and emerging as a dramatically modern retail presence at the edge of Eastern Europe.

Potsdamer Platz Arkaden, a
400,000-square-foot glass-roofed mall, opened last October in Berlin.

Construction cranes have dominated the skyline for years, as many major office and retail projects have gone into the pipeline. The former East Berlin saw explosive growth of 76% in retail square footage in the six years following the 1991 merger of the divided city (see chart), while the area formerly comprising West Berlin saw an increase in retail surface area of about 9% in the same period.

According to information provided by the Industrie-und Handelskammer Berlin (the retail chamber of commerce for Berlin), by year-end 1997 Berlin had become home to a retail industry of more than 16,500 stores, with an annual retail turnover of 29.6 billion DM (approximately $16.5 billion U.S.). At that time, the city had 94 shopping centers with an aggregate surface area of 1.5 million square meters (around 15 million square feet) or 47% of total retail space.

Development continues apace. Data from Müller Consult, a Berlin-based business/retail consultancy, show that if currently planned projects are completed, by the year 2000, total retail area in the former East Berlin will have increased 190% from pre-liberation levels, and by 20% in the West. Total retail area in shopping centers is expected to reach 2.3 million square meters (23 million square feet) by 2010, Handelskammer projections show.

Germany's leading shopping center developer, Hamburg-based ECE (Einkaufscentrum Entwicklung) has built no fewer than seven major enclosed malls in the downtown core, most of them within the last four years. The newest is gleaming Potsdamer Platz Arkaden, a 40,000 square meter (400,000 square foot) glass-roofed, three-level mall opened last October in the Potsdamer Platz area, a bombed-out no-man's-land during the Cold War that today is fast becoming the new hub of "Die Mitte," or the city center.

RETAIL MARKET INDICATORS IN BERLIN

Total Retail Sales

Like the city landscape, Berlin's retail customers have changed dramatically, too. In place of the aging population of the former western sectors, a much younger and increasingly international consumer market has taken over. Tourists and other non-Berliners now play a significant role, according to Thomas Nagelschmitz, managing partner with SCC Shopping Center Consulting, Berlin.

"It's not just Berlin people who shop at Jil Sander and Prada," he said. "Eastern Europeans shop there a lot; in the Kurfürstendamm [a leading downtown upscale shopping district], 25% to 50% of sales are to Russian customers, who want things with a [designer] name on them." This will remain an important customer source, Nagelschmitz predicts, because Berlin is the largest city close to the Eastern European countries. Retailers have recognized this, and made "Gate to the East" a marketing slogan for the city.

Retail floor space in square meters

Foreign retail players, including many U.S. brands, are opening shop here in growing numbers. Tenants at Potsdamer Platz Arkaden, for example, sound like an international retail Who's Who: Esprit, Benetton, Mango (a Spanish apparel company), Mexx (a Canadian apparel chain), Sweden's Hennes & Mauritz (apparel), Eddie Bauer and Hallhuber, a Munich-based big-bookstore chain.

Nike International opened the first European NikeTown in April on Kurfürstendamm near the famous KaDeWa, a huge gourmet-food store that is a retail landmark in its own right. Public relations manager Susanne Walter said, "Berlin was chosen because it's one of Europe's most interesting cities -- an exciting, fascinating and vibrant market with a very wide variety of subcultures, fast-moving and fast-developing, too, with the new German government moving here this year."

In addition to the lively musical, theater and cultural life, Berlin also has a strong tradition in sport, Walter noted, which makes it a particularly appropriate site for Nike's 3,500-square-meter (approx. 35,000 square feet), two-story store.

Yet despite the progressive shopping scene, outsiders should approach Berlin with caution, maintained Christoph Meyer, retail specialist with Müller Consult.

The construction boom has caused sales per square meter to drop, he pointed out, so that the 1997 yield was only 88% of that in 1995. Müller Consult statistics predict further decline: Today's rate of 9,250 DM per square meter (roughly U.S. $51,800 per square foot per year) will decrease to 8,200 DM (U.S.$4,592) per square meter in the year 2000.

The city's residents have lost spending power: West Berliners no longer enjoy the subsidies -- as much as one month's pay -- which were doled out during the Cold War, Meyer said. East Germans went on an initial spending spree after reunification when they received grants and favorable exchanges on their currency, but that, too, is past.

The decentralized character of Berlin's consumer market can also make this a tough town in which to do business. Meyer pointed out that Berlin is not a single retail market, but several distinct retailing neighborhoods.

"You will fail if you try to serve all of Berlin from one store," he said. "Companies who want to serve all Berlin go to 10 or 20 locations. You have to analyze the different districts and ask what kind of location you need, what neighborhoods are appropriate -- they could be as different as Queens and Manhattan." It pays to remember the differences between West and East Berlin, too, he advises. The former is highly developed, the latter not.

The tendency to shop locally is more ingrained in Berlin than in most big cities, Nagelschmitz added. "There are many little towns ... There are many people who never leave their part of the city and only go to shopping centers which are close by."

He said he feels that the Cold War division of Berlin strengthened these neighborhood connections. "There were frontiers that people couldn't pass through, so they had a habit of shopping close by."

Retailers ignore this 'polycentral' character of the city at their peril, Meyer said, citing the failures of two retailers -- England's Virgin MegaStore and SNAC, a French books/entertainment chain -- both of which withdrew from Berlin after one-store attempts to break into the market.

Berlin's highest-profile central shopping districts are (1) Alexanderplatz, the traditional shopping area of East Berlin; (2) Kurfürstendamm and Torstraß, the central business district of former West Berlin; (3) Friedrichstraße, a new, innovative, young and luxury/upscale retail scene including Friedrichstadtpassagen, a large enclosed center; and (4) Potsdamer Platz, a region still in development. Other fast-growing retail destinations are Schloßstraße in the former West Berlin, anchored by Woolworth and three department stores of the Karstadt group (Karstadt, Wertheim, Hertie Haus); Wilmersdorferstraße and Karl-Marx-Straße. Meyer sees many possible opportunities for retailers throughout the city, however, even in less trendy shopping areas. "We still have a lot of very old-fashioned retail in Berlin," he said.

"There will be lots of changes in the next two decades, so certain locations won't work anymore. The small supermarkets will be forced out by larger stores; modern customers don't want to shop in a store of 400 square meters. You can already see vacancies and former retail spaces which are being converted to other uses. There are many such chances for development."

Nagelschmitz pointed out that retailing has been difficult throughout Germany in the 1990s, but companies such as Marks & Spencer, Eddie Bauer and The Gap could be successful because German customers are often in search of new concepts. Consumer electronics, fast food and leisure retailers could do well, he said. "You need something special, something different. And be well informed about the market," he suggested.

Andreas Mattner, managing director of ECE Consulting, Hamburg, echoes this sentiment.

"We are interested in foreign companies from the U.S. and other countries who can bring fresh style into our shopping centers," he said, noting that up-to-date fashion and cosmetics are two tenant categories his firm is particularly interested in.

For those who want to be part of Berlin's retail and mall industry, one thing is apparent: In this city which continues to re-invent itself, change is probably the only real certainty.