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The Warsaw Voice » Real Estate » October 29, 2010
Delicious Pie, But Must Be Shared
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Delicious Pie, But Must Be Shared
October 29, 2010   
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The rivalry among modern shopping malls starts very early, at the site selection stage.

Finding a plot on which to build a shopping center is not really a problem. What is much more difficult is finding a plot on which a shopping mall will generate the expected return on investment. “For the end customer, the person doing their shopping at our mall, the important thing is getting there easily by municipal transport and by car,” explains Magdalena Frątczak, retail director at CB Richard Ellis. “That’s why in big cities, the best malls are those close to the center. It is slightly different for malls that have a regional reach; they are usually located outside the town or on its outskirts.”

What customers and tenants like
Operating on a tenant’s market like today’s, investors have to work hard to persuade retail chains to open a store at their particular mall. Among factors that could convince a prospective tenant, Grzegorz Dudziak, strategic director for property management CEE at DTZ Management Polska, lists sociological market research for a given town, the mall’s location, clear information on how the mall will be positioned competitively and what other tenants will be operating there. Tenants will also ask about formal issues like construction permits and funding for the project. They will expect the investor to make some concessions in the provisions of the contract and, of course, to leave open the question of the store fit-out.

Every shopping center seeks its own distinct feature. A movie theater is an unquestionable asset, especially in smaller towns, where movie theaters are found mainly within shopping malls. When competing malls offer similar goods, “soft” factors come into play—the things that make customers feel good at a mall. These can include being warm in winter and having air conditioning in summer, or whether the mall is always clean and security guards polite. Customers appreciate benches in the aisles where they can rest, repack their shopping bags or leave a spouse who is tired of store-hopping. “This is where good cooperation between a mall and its tenants comes in,” Dudziak says. “A good administrator should offer some gentle remarks about the tenant’s staff. Sometimes a tenant will complain of low sales, whereas in fact their store is closed half the time because the salespeople open up late or close early or take frequent breaks during the day. This works both ways: tenants should also tell the administrator if the cleaning firm shirks its duties or a security guard is rude to customers.”

Parking garages with green lights
A customer’s first contact with a mall often takes place in the parking lot. This is where many people decide if they will ever return. “Large, properly marked and well lit,” is how Frątczak lists the best features of a user-friendly parking garage. “A dark parking lot can scare people off, reminding them of movie scenes of robberies or purse-grabbing. It’s easier to use a parking lot if green and red lights indicate where free spaces are. Other elements that visitors to a mall will notice include easy entry and exit from the parking garage.”

We feel good at malls with proper access throughout—ones where we do not get lost and do not have to wander around in circles to find the store we want. If it is easy to move between floors and around each level, we will not lose our tempers and will find the time to visit all the stores that interest us. “A competitive edge can also be provided by a grocery operator and a good range of catering facilities,” adds Frątczak.

For women, it’s in the details
Mayland is a company that has been saying for years that the special focus of its malls is female customers—young girls, singles, wives, mothers and grandmothers. “Studies show that almost 80 percent of shopping decisions are made by women,” says Anna Skrocka, PR manager at Mayland. This developer knows that the most important thing is to offer the right product range, but it also wants women to feel good at its malls. For example, the company noticed that women leaving the revolving doors glanced at their shoes to see if they had not damaged their heels. That is why the doorways are now lined with soft carpeting, for easy walking even in spike heels. Another feature important to women is bathrooms. Here, Mayland attends to the smallest details, such as having hooks on which female customers can hang coats or purses.

“Mayland’s latest idea is the Beauty Point,” says Skrocka. “In our new projects, like Serenada in Cracow and Wzgórze in Gdynia, we will have spaces in the bathrooms where women can freshen up and do their makeup. Each Beauty Point will have cotton swabs and cleansing cosmetics. We have also given thought to the comfort of women who shop with children. Play areas for children are located right next to the food courts so that mothers can relax with their child in full view.”

Problems unavoidable
The toughest situation is in small and medium-sized towns where developers built two or three modern malls during the boom. “A few years before the crisis, Poland gained the reputation of a country with excellent macroeconomic conditions, perfect for investing in real estate,” Frątczak explains. “Many developers lost their common sense and—without looking around, without checking how absorptive this market is—started building shopping centers, often one next to another. This even happened in small towns.” One example is Gliwice, where two projects were built, the Forum and Focus Park malls. Another is Płock, where Caelum Development opened its Wisła mall in the fall of 2008 and then the Mazovia mall opened on the other side of the intersection this spring. Frątczak adds that in the same town, Atrium European Real Estate built its Galeria Mosty, but only the ground floor will actually open due to the current economic situation and poor interest shown by prospective tenants. The upper floor is impossible to commercialize at this point. “Again, this was a lack of foresight that a town of 120,000 residents cannot absorb three large projects,” Frątczak says.

Grzegorz Mroczek, director for leases at Caelum Development, is confident of Galeria Wisła’s position in Płock because, in his view, his company was there long before the competition, the mall is fully commercialized, and it has already gained many loyal customers. He does add, though, that at such a level of saturation with modern retail space, administrators cannot expect to avoid problems. “High saturation translates into rent levels, and competing investors often spoil the lease market,” says Mroczek. “The situation in Płock today is that rent per square meter can differ several times [between projects]. This is a problem for both parties: for investors because projects will soon become unprofitable, and for tenants who are confused by the market chaos around them. In addition, with each re-commercialization, the lease process is slower,” he adds.

Some tenants, like the Piotr i Paweł delicatessen or Rossmann cosmetics store, are present at both Wisła and Mazovia, but others are found only at one mall. How should tenants compete? What will bring in the customers? “One element that sets us apart from the competition in Płock is the five-room movie theater for 1,200 people,” says Mroczek. “Neither Mosty nor Mazovia has a movie theater. We have also focused on entertainment, offering bowling, pool and a pub with karaoke and discos. Wisła has many brands from the upper-medium segment and that is how it is positioned by customers. We also have as many as 11 anchor tenants that will never set up a second facility in this market, including C&A, Kappahl, New Yorker, S.Olivier, Smyk, Intersport and the Helios.”

When a medium-sized town has two or three malls, they have to be distinct. The distinguishing element is usually the price range according to which a mall chooses its tenants.

A new mall in a small area cannot hope to build the right mix of tenants. This leads to absurd situations where one mall has three cosmetics stores or several jewelry stores. No one is happy—not the tenants, because they have to share a pie they would have had to themselves in a healthy market, and not the customers, because the offered goods are not complementary.

“Problems exist with commercialization,” says Mroczek. “Investors have different ways of trying to cope, for example letting an excessive share of local retailers into their mall, or more franchises. That doesn’t solve the problem and can sometimes even exacerbate it. Franchisees, though they have a recognizable brand and good products, often do not have any commercial experience and their business does not do as well as expected, which can lead to insolvency.”

Such problems initiate a chain reaction in management. A huge deficit appears in running costs and the marketing budget, which has a negative impact on a project’s professional operation for the next 10 years.

Be different or die
Malls that open as the second or third project in a given market have problems with commercialization because retail chains find it unprofitable to open three or four stores in a small or medium-sized town. Analysts agree that a high density of shopping centers is not good. “When one town of several dozen thousand residents has more than one large mall, this should lead to greater competitiveness, but it is quite easy to over-saturate the market,” Dudziak says. “The result is often that malls—after an initial battle—divide up the town like a pie. Mall-visit figures stabilize at a certain level, and tenants report decreasing sales, which can make collection renewal problematic.” As a typical example of over-saturation with modern retail space, Dudziak cites Bielsko-Biała (Silesia province, over 175,000 residents). The town has three modern malls: Sarni Stok, Sfera I and II, Gemini as well as Auchan and Tesco as hypermarkets with an adjacent retail area.

Frątczak provides the example of Kielce (Świętokrzyskie province): next year will see the opening of two modern malls there, Galeria Korona (36,000 sq m) and the expanded Galeria Echo (66,000 sq m). A third mall called Plaza is in the works as well.

Wojciech Gepner, public relations manager at Echo Investment (developer of Galeria Echo) admits that in Kielce, with a population of just over 200,000, having three shopping centers is not comfortable for anyone. “We will have to share the market,” he says. “At the commercialization stage we didn’t have to compete against anyone because we took off before anybody else. Once all three malls are operational, we will have to adjust our marketing plans accordingly.”

Each mall will try to be different and win the loyalty of as many Kielce residents as possible. Asked how Echo Investment plans to build its competitive edge, Gepner says, “First of all, ours will be the biggest mall in the region. After expansion, Galeria Echo will have almost 70,000 square meters of space for lease. Our distinct feature will also be Dekorada, a functionally and architecturally separate space dedicated to one sector. This area of 5,000 square meters will be home to several dozen tenants offering products and services for home finishing, fitting and decoration. The interior design sector is very dispersed today and customers in search of a carpet, lamp and curtains have to visit at least a few stores. By next year all these stores will be in one place at our mall.”

Less money, better decisions
The financial crisis has cooled down planning by developers. There have been few new mall openings this year. Investors are slowly realizing that not all ideas are practicable, that plans need to be rationalized, that markets and rivals need to be observed, and that substantial research should precede plans to enter a saturated market to determine if it can absorb yet another mall.

Magdalena Fabijańczuk
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