City centres in trouble – Risks and chances for 1A city locations (2005)

When the perspectives of German city centres are discussed today, the same statistics seem to appear everywhere proving that the future in the heart of urban life looks rather gloomy. But there is a solution to every problem.

Lasting customer resistance and declining sales are in blatant contradiction with the simultaneous growth of selling area in retail business. And when these new shopping opportunities are created outside of the traditional city centres, you have taken the first step towards deserting the city. Meanwhile, Germany has a retail area of about 113 million m2, which represents 47% growth as compared with 1990. In the s ame period of time the number of shopping centres – mostly on greenfield sites – has risen from 90 to over 350. This development has made Germany No. 1 in Europe: Nowhere else is there more selling area per inhabitant than in the Federal Republic, which in turn has been economically stagnant for years. While the considerably more free-spending French, Britons or Italians settle for 0.7 m2 of selling area per capita, German customers have just under 1.4 m2, roughly twice as much area at their disposal for shopping. Yet large shopping centres still keep opening in German cities almost every month. Medium-sized cities with shrinking populations will be able to offer up to 40, 000 m2 (e.g. Schlossarkaden in Braunschweig) of additional retail area virtually over night. Even though many centres are no longer built on greenfield sites but in the periphery of the previous 1A locations, this kind of urbanistic interference constitutes great danger for the established retail trade. This is when the so-called downgrading process takes its usual course: When attractive customer magnets move from the pedestrian zones into the new centre, purchasing power is partly diverted. Consequently, the remaining retailers lack frequency and sales. Whilst larger chain store operators can streamline their portfolio relatively smoothly, it is predominantly the owner-managed specialty stores that quickly get into economic trouble. Controlled withdrawal – if at all possible – is the best alternative in such a case. In order to avoid the immanent vacancies, low-price stores and 1-Euro shops have to be accepted as tenants, which ultimately results in a further loss of attractiveness. The real 1A location shrinks considerably, and the rest of the street slowly bleeds to death economically as a B location. Investments to preserve the value of these formerly sought-after city buildings cease. The facades start to crumble, and finally, the creepingly deserted city centre is generally shunned, particularly by the spend-happy citizens from the outskirts who will start looking elsewhere for their shopping experience. Is the development outlined here an inevitable automatism or can you take well directed countermeasures? In some parliaments of local affairs, a process of rethinking has meanwhile taken place. Whilst three large ECE Centres are being realised in the Lower Saxonian cities of Hannover, Braunschweig and Hameln, Oldenburg and Osnabrück are still vigorously discussing there effects.

In Düsseldorf, the planned Bilk-Center – due to irresolvable conflicts – resulted in a town hall crisis and the subsequent termination of the conservative-liberal coalition agreement. And in Cottbus, Münster, Würzburg and finally in Duisburg (MultiCasa with 70,000 m2), city counsellors stopped the continued and unimpeded expansion of selling area. But what can local retail do when sales in the city are sagging given the recession of purchasing power? It would seem most reasonable to take a look at the assumed winners of this structural change. The success of shopping centres is based on consistent management examining all the basic conditions relevant to purchasing power already at an early stage of planning, and also providing lasting and active support for the tenants in their business development after renting the space out. Many centres even audit the sales figures of their retailers in order to prevent insolvencies and deterrent vacancies at an early stage. Successful centre management resembles a “shopping dictatorship” and does not leave anything to chance.

Two factors are to be pointed out in particular:

  1. A centre will live on its well regulated industry mix geared to the overall needs of its customers. Due to the centre management’s compensatory calculation, there will be space for shops with below average yield per m2 , such as drycleaners, toy stores or arts and crafts, as well as the more profitable trades of the textile industry, opticians or telecommunication. So all shopping can be taken care of within one complex and during uniform opening hours.
  2. Profitable centres offer a permanently updated entertainment program for the entire family. Whilst previously, only the real consumption needs were attended to, you expect a “holistic shopping experience” for your money toady. Only those who provide the respective events will have lasting success.

These examples illustrate why the pedestrian zones are at a disadvantage as compared with the shopping centres. You cannot expect compensatory calculation of rental income from the real estate owners: In any new tenancy, the achievable optimum yield plays the main part. And when measures to increase the attractiveness of city centres are taken, there is always trouble when not all shops participate in such measures and thus an unfair distribution of charges is to be expected.

Despite all Cassandras, the significance of inner cities has clearly grown, according to a survey of the federal consortium of medium-sized and large enterprises, the Bundesarbeitsgemeinschaft der Mittel- und Großbetriebe des Einzelhandels e.V. (BAG). Especially on Saturdays, the ratio of customers from out of town, who are extraordinarily spend-happy, has risen considerably as compared with previous years, as well as the quota of the above 50-year-olds, who have a relatively high amount of resources available for personal consumption. Is senior citizens marketing a trend that will contribute to a city’s attractiveness in future? In contrast, shopping trips as family events have become less frequent.

The offerings on German pedestrian zones are obviously not set for the different (entertainment) needs of parents with children. At the headquarters of the most chain store operators in Germany, the pedestrian zones are still very important. The expansion consultants of Domino observed particularly in recent months, that areas at shopping centres only play an extraordinary part when no space for ambitious expansion targets is available in inner cities. However, if there is any, the real 1A locations are favoured. According to the experience of renowned chain store operators such as Bonita (ladies’ wear) or Görtz (shoes) higher specific sales per m2 are achieved there.

So there is a basic demand, even if some companies are reducing their area due to the sustained economic slowdown. But it is a myth that only telephone chains and low-cost bakeries are expansive at the moment. The tenancy successes of Domino demonstrate impressively that many companies from the trades of textile industry, optics, entertainment electronics, book shops or the catering trade are looking for new locations and could thus contribute to a healthy local mix of trades. It is quite striking that successful contract negotiations no longer depend solely on the absolute amount of rent, but that the whole package, with its terms, rent adjustments, extension options, evidence of credit worthiness, etc. is examined in its entirety. We would be pleased to support you in these negotiations.