skip to Main Content

Spread of chain stores in town and city centers – Why the fuss? (2007)

The weal and woe of town and city centers in Germany is currently the focus of numerous studies. While the scientific analyses describe in a differentiated manner the mechanisms affecting the development of top locations, the frontpage spreads of many daily newspapers have been very quick to lay the blame for a fall off in local consumption at the feet of the chain stores. According to the newspaper articles, these chain store branches make a town ugly and take away a city’s special charm, with the ‘sameness’ of the shops depriving towns and cities of their character and urban identity. Only recently, the newspaper Die Welt published an article entitled ‘Eintönige Einkaufswelten’ or ‘Monotonous shops’, in which it claimed that the face of towns and cities is being increasingly shaped by large chain stores.

The analyses of town and city centers carried out regularly by Domino do, in fact, confirm that the percentage of chain stores in top locations in Germany has increased dramatically in recent years. While the share of chain store branches in cities has stabilized almost everywhere at a figure in the region of 70 to 85 %, this percentage is currently exceeding the 50% mark in particularly sought-after medium-sized towns. So what’s behind the theory that a rising number of chain stores diminishes a city’s attractiveness? Why do so many local journalists believe that a town is only in a strong position when it has a relatively small number of chain store branches?

In general, the coming and going of successful and less successful shops is typical for certain market mechanisms best described using the motto ‘up or out’. Many other industries have already undergone similar market consolidation involving predatory competition, for example the automotive industry (why does Borgward no longer exist?) or manufacturers of household electronic goods such as Telefunken, Saba or Grundig. This phenomenon is now taking place amongst inner-city and town-center retailers: competitive prices can only be achieved through large volumes, which in turn are only feasible using purchasing alliances or by means of successful expansion via a fast-growing network of branches. Especially in the textile industry, numerous venturous entrepreneurs of small and medium-sized enterprises such as the owners of Bonita, Ernstings, Wissmach or Buddelei have decided to set up chains to ensure that they move up and not out of the market. With 250 to 500 branches each, these companies then have the critical size needed to benefit from the requisite economies of scale in purchasing and shop construction.

The current consumer climate favors chain store concepts like these, which are aimed at the low to mid-price segment and call for a higher stock turnover rate in order to compensate for lower margins. It is the chain stores that make trendy fashion from ‘global production’ affordable for the masses. If they then succeed in combining these offerings with cosmopolitan flair, large-scale chain store concepts such as those of H&M or Zara quickly become local magnets for attracting customers. As a result – in the fashion industry at least – chain stores contribute significantly to increasing the attractiveness of top locations. Mayors in medium-sized towns have now become aware of this mechanism and, in view of their limited resources for promoting business, are striving to attract chain stores. Surveys have shown that even many traditional retailers welcome the appearance of chain stores in their neighborhood, as this generally leads to a measurable increase in business. However, some owner-managed businesses have missed their chance to invest in their shops before it is too late and adjust their range of goods to coincide with the latest trends. As a result they will be pushed out of the market. In some cases it is just not possible to find someone to carry on the family business, and a new chain store branch takes over the property.

Domino has found that particularly extensive modernization measures and especially the renovation of historical facades often only take place when economically stable chain stores open up branches, as they place a great deal of emphasis on corporate design and an attractive shop front. Some of the nicest buildings with half-timber or sandstone facades in historical town centers are now home to chain stores such as Benetton or Fielmann. Does this mean that the large retail chains are Germany’s secret restorers of historical buildings?

This is true, indirectly at least. The proprietors of such buildings need the security of sustained rental income in order to launch long-term renovation measures. The people on the street don’t need to worry; the main issue is that the buildings in the town center remain attractive and the feel-good factor in the pedestrian area is retained. For local economic development, the chain stores’ choice of location functions as a gauge of the local business environment. If more and more chain stores start appearing in a certain part of town, the retail trade in that part of town will gain in significance in the medium term. If, on the other hand, the chain stores exit a retail unit without leasing a larger or better property nearby, this is an indicator that the location does not provide enough business or that purchasing power is dwindling. In this case it is possible that the area, which used to be a top location, will deteriorate and become insignificant. In larger towns and cities this can be restricted to certain streets. In small towns, however, this negative effect can spread rapidly throughout the entire pedestrian zone. Consequently the level of risk for a functioning pedestrian area is higher if the percentage of chain store branches is relatively low. Town centers with a lot of tourists can constitute an exception to this rule.

In fact, the attractiveness of a top location is much more heavily influenced by the industry mix. A balanced mix of all ranges needed in a town or city center is imperative in order to retain purchasing power in the town in the long term and prevent customers from switching to neighboring centers. The presence of too many providers from any one industry bores customers. This phenomenon of a certain type of shop popping up all over town tends to come in phases. Now that the wave of discount bakeries seems to be slowly receding subsequent to market consolidation, visitors to small and medium-sized towns will be surprised to see, side by side, rows and rows of the same type of shops with a range of products that is almost identical. A good example can be seen in one district town in Swabia, where the 40 shops in the real top location include 6 telephone shops and 5 opticians directly adjacent to each other. Yet the motto ‘up or out’ applies here too, and it is easy to forecast that the law of the market will take effect before long, heralding a new wave of consolidation.


To summarize it can be said that the attractiveness of a town or city center is not endangered by a high percentage of chain stores. On the contrary: chain store branches often function as a magnet that clings on to local purchasing power from which the local retailers can also benefit.

A balanced industry mix is equally essential. Discerning customers are increasing losing their patience in cases where this balance is lost for a period of several months. These customers do not hesitate to take their custom to more attractive neighboring towns. A lot of money and advertising is needed to win back customers that are lost. In such a case, a large percentage of chain stores could actually reduce the attractiveness of a location after all. For example, city advertising associations often complain that many chain stores are free riders, not participating in special campaigns in the city and refusing to share any costs, for example for Christmas lights, while in the large shopping centers the chain stores are forced to accept the strictly required marketing cost-sharing regulations in place there.