- SPAIN RETAIL MARKET CURRENTLY
This question is key to retailers when considering where they will break ground next. In Spain, generally the retail sector has increased alongside with consumer purchasing power and total household expenditure. Key indicators such as household effort rates decreasing due to lower interest rates especially on mortgages, decrease in unemployment, increase in consumer confidence as well as other market indicators have helped in the increased retail landscape to date.
- MARKET SATURATION & COMPETITION
The question is, are we saturated? Currently, according to market analysts there is 334sm per 1000 habitants (2016) with at least 13 provinces being above the retail density and quite a few projects going live in the coming years. How much more will the market absorb? The only way to know this is understanding each catchment area and understand which retail hubs are serving them and in what ways. The leading commercial centres open with big bets set on design, the target public and aim to be category killers. We see local businesses close everyday while the big centre inaugurations seem to be always just around the corner. Just last week I attended quite a beautiful centre’s inauguration. SCCE’s Plaza Rio 2 which is a massive development along Madrid Rio and facing “el Matadero”. A beautiful project which has injected into the area circa 200MM€ investment together with approximately 2,000 new jobs. This big development undoubtedly monopolizes the consumer attention and footfall for a given catchment area, it also forces us or the retailers to become more creative and address market sectors that are left out of the megamall circuit.
On the other hand, big malls have a lifespan and either they evolve or die. There are examples of enduring centres in Spain such as L’Illa in BCNA, La Vaguada and Parquesur in Madrid, they are large centres and they have been adapting to consumer trends not to mention the established loyalties they have achieved in their corresponding markets. The challenge for these and all formats is always being on trend and not getting pushed out by a bigger, newer, slicker centre with more to offer. But that is another chapter!
- LIMITED MARKET CAPACITY
I believe the market has a finite capacity and if that amount of maximum footage potential is in the format of a centre, a neighbourhood store, a big box format, outlets, internet purchases, these are determined by market factors restricting what we develop and how much. In other words: Healthy competition is always determined by the market. One of the most important factors in this equation, is the average household disposable income. If this factor doesn’t increase, the maximum retail or commercial footage will stay stagnant or even decrease. It will inevitably be capped when it reaches market indicators. Retail needs sales. Sales needs disposable income and consumers who want to spend their money and not save. Without these, retail dies. New retail must aim to capture market share and get a piece of the pie. The only way they can do this is by competing, finding out what the big guys are not doing or how to gain a competitive edge.
As for malls, I personally think we are approaching saturation in some of our cities. In neighbourhoods or secondary cities there could be a potential for start-up retail businesses, alternative formats, markets, local restaurants, to name a few. It is not easy to establish a business model that will work, but it’s a challenge and if you visit the US, small businesses in strip shopping centres flourish alongside massive commercial centres and big box operators (Target, Walmart). Big malls can fall into being repetitive. The same operators no matter where you are in the world, the same experiences, the same places to eat. Whether you land in Dubai or Los Angeles, there is always a Zara to greet you! The smaller merchants can compete by being unique, practical, more exclusive, better customer service, personal and lifestyle focus and easier to reach. Also, rather than thinking that internet is robbing us of opportunities, It could potentially be creating new ones. Small merchants can create awareness relatively easy and give better customer service but everyone has to learn how to put the internet to good use.
In parallel to the big developments there is hunger for the unique, the local, the “eco” or organic movements. These are not movements that the big guys can attend to so easily albeit the cost for smaller retailers are always more challenging.
- CLIENT EXPERIENCE
The client experience is at the core of any retail business. As a matter of fact, there is evidence of alternative formats in a lot of big retailers. IKEA, Decathlon, MediaMarkt and many others are trying to address more specific catchment areas and clients outside of the big malls to get a piece of the neighbourhood market share action that has gone unattended since everyone swarmed to the shopping centres.
- TRANSFORMATION
New retail has been a transformation more than a growth. Millennials, the internet, parking, employment among others, all influence today and future commercial formats. How we analyse the market to come up with an answer or a business plan will be our guide to developing retail space. I don’t think it will be brand new space simply one that compete better with what the market currently offers.
New formats should take into consideration key factors that are critical for any commerce: Identity, market share, market need, market capacity, visibility, accessibility, competition, goods and services tailored to the specific neighbourhoods to name a few and never lose focus of “good ole” retail principles and business practices.
Any format is a valid format, but does the market support it? Shopping centre developers have ample teams studying this constantly and trying to come up with solutions that can change from one year to the next. The aim is now leisure resorts, retaining visitors, and an ample offer of goods and services. This is in response to internet and we will know if they have arrived at the correct response in the next few years or if there will be white elephants all over the national landscape.
- NEW FORMATS
There will always be room for new formats, new stores, who is the next popular operator? What will they address in the market? What gap will they fill? What will they look like? Detailed market study is key and KNOW YOUR CLIENT. When I was in high school and worked for a few months at a McDonalds like many of my American home town acquaintances, the first thing the manager always told us is “THE CLIENT IS ALWAYS RIGHT”! Well, in terms of market and developing new formats and new offers, this still holds true. Commerce is the ultimate democracy; the client votes in favour of the choices you made in your commercial development with his or her final purchase, on the other hand, poor sales is equal to failure and a clear indicator that one has made the wrong decisions if you failed to understand your market.
An easy example: if you want to sell socks, show them! Make them look nice! How you do it doesn’t matter they just have to be visible, readily available and targeted to the people who want socks and that can buy them at the right price. If the store next to you has more selection, you may lose the sale. If you are on the beach and the competitors only sell flip flops, well, you didn’t read the local market! If you don’t have red socks, you will lose the sale of those and the sale of the other blue socks your competitor had in his store when your potential client walked into his store or web site. Your competitor may also have an online platform and pick up point as well as sales in the store and you don’t. Maybe he is nicer to his customers and has repeat business and word of mouth. Maybe his store is easier to get to! He may even have more lights on and the product is more visible from the outside! All this is good ole retail business practice. RETAIL IS DETAIL. Now we just have new tools.
Keeping a close eye on the market pulse is vital and not easy. But it’s the retailer’s business to know it inside and out. There are so many factors involved in good retail business decisions. It’s exciting when you know how to read the market correctly and you know how to position your products whether it be in a centre, a neighbourhood store, an online platform or your neighbourhood lemonade stand as a child! The format is open, it’s up to the retailer to know what his target market wants.