JLL asked 400 national and international retail representatives a series of questions to find out where the future of the German fashion industry lies, including; what are your expansion goals? Which criteria are relevant to you when choosing your location? What effects does online retail have on your business? Some of the results were surprising.
Offline retail reigns supreme
Despite the growth in ecommerce, over 90 percent of those surveyed said that the importance of offline retail will remain the same or increase in the next five years. In addition, these companies said that they plan to open new retail branches in Germany within the next 12 months with four out of five claiming they wish to develop their presence in key inner-city locations. Half of the expansion managers surveyed said they consider shopping centres a core part of their strategy.
Secondary city benefits
The ten most important shopping hubs in Germany (Berlin, Düsseldorf, Frankfurt, Hamburg, Hanover, Cologne, Leipzig, Munich, Nuremberg and Stuttgart) are the top expansion targets for fashion companies. Yet increasingly, secondary cities with populations of 100,000 to 250,000 are now being targeted. Almost half of the companies surveyed are planning new branches in such cities in the next year. Consequently, in relation to all Germany’s inner-city rentals, the rental share in these cities rose from an average of 19 percent in 2009/2010 to 22 percent in 2013/2014. In these cities, rent averages rose by 12 percent between 2004 and 2014. In my view, this also speaks volumes. The highest rents in the largest cities have risen during the same period by an average of 37–45 percent – a much greater increase. Of course, costs have also risen along with rents.
Price footfall and structure
Which factors are relevant to fashion companies when they make their renting decisions? That was the next element we wanted to explore. We asked companies to rank ten factors in order of importance. Over half of the expansion managers we surveyed placed the rental price at the top of the list followed by the number of passers-by and the mix of tenants. Much less importance was placed on indicators of purchasing power, centrality and turnover. Not even one in five saw these three factors as the most important. Almost half of those surveyed assigned a low value to these.
Companies favour five-year rental terms
About half of the companies favoured rental contracts with five-year terms. Two-fifths preferred ten-year contracts. Just 15 percent of those surveyed said they preferred contracts running less than five years due to the high initial investment costs. Half of the companies said that the time needed to complete the property rental process has not changed in the last two years.
Interconnecting online and offline retail is vital
Most of the companies surveyed view their online store as essential or complementary to their offline stores. For most of those surveyed, online retail has only supplemented their business so far. The majority of their turnover still comes from physical stores. However, most of those surveyed predict that the online side of their businesses will provide an increasing share of turnover in the next two years. That is why interconnecting online and offline retail is considered vital.
The high number of returns remains a drawback for the online fashion sector. Some expansion managers believe that there are significant advantages to having a network of store branches compared with pure online retail. On this basis, significant importance is attached to modernising stores, creating new shop designs and displays, and launching new concepts in order to achieve a balance between online and offline.
And what about the size of the shop floor? Three quarters of those surveyed do not think it necessary to change the size of their stores. Most of the companies have already found a shop size that works for their concept, and have adjusted their store branches accordingly.
The fashion industry is therefore firmly established, and looks to be more than ready for the future.