Search This Blog

Sunday, 10 January 2016

Brick & Mortar shops do definitely have a chance in The Netherlands, at the premise that cities and municipalities stop with their Kamikaze strategy of building more and more shopping centres.

When we look at the Dutch shopping landscape with an uninformed eye, it seems that the time of the Brick & Mortar (B&M) stores is finally over. 

Large store chains, like a.o. DA drugstores, V&D department stores and the MacIntosh shoe stores Manfield, Invito, Scapino and Dolcis, all are heading for the gutter with hardly a chance of getting out of it again. The prices per square meter of shopping space are dropping once again and it seems very hard to turn the tides against the online shops.

However, there might be a glimmer of hope for the B&M stores in The Netherlands in the form of independent retailers and their different, ‘non chain-store’ shops; that chance exists, provided that the Dutch cities and municipalities quit their Kamikaze tactics of opening more and more new shopping centres. The latter proves to be a longshot, unfortunately.

While the independent DA drugstore owners tried to cope with the initial bankruptcy and overnight takeover of their central DA headoffice by Holland Pharma, the situation for the V&D department stores and its personnel seems even more desperate: there is interest from Canada-based retail chain Hudson Bay to take over the V&D properties at their absolute A-locations within the large Dutch cities.

As the V&D premises are not owned by V&D itself anymore, but by independent commercial real estate (CRE) owners, there is a considerable chance that the CRE owners choose for the fresh and promising option of Hudson Bay and abandon V&D as a ‘blast from the past’, with no future in The Netherlands anymore. That would be the end for one of the oldest and most-respected department store chains in The Netherlands.

And as far as the store chains of the MacIntosh retail group are concerned –
Manfield, Invito, Scapino and Dolcis – their definitive end seems inevitable now, when we look at the current situation in the Dutch shopping landscape.

In an article of exactly two years ago, I put the problems, which caused so many headaches for Dutch store owners, in a bulleted list. While looking at this list, it seems still extremely topical:

During the last decade, there have been six important factors for the retail industry:
  • The soaring costs for car parking in the cities and villages, which turned fun shopping into an expensive pleasure;
  • The unstoppable development of the online sales channels in The Netherlands;
  • The aging population, which diminished the need for shops, as older people buy and consume less goods than younger people;
  • The soaring shopping space, as a consequence of the mindless building frenzy that had so many city centres in its grasp, and the overkill in stores that was the result of this frenzy;
  • The piranha behaviour of the large retail chains, which have first eaten away the necessary margins for the independent shopowners and subsequently for the franchise holders of these large chains themselves;
  • The increased austerity among the Dutch citizens since 2008, as a consequence of the economic crisis.

These first three factors have diminished the numbers of visitors and fun shoppers at shopping malls.

At the same time, the last three factors have eroded the margins for the shopowners so much, that many shopowners perished during their struggle for survival. Many other shopowners are currently clinging on to life by the skin of their teeth.

The municipal greed and the structural exaggeration of sales opportunities and growth prognoses, maintained by the large shopping space operators, have dealt blow after blow to the poor (independent) shopowners. These people often invested their life-savings and – on top of that – high bank loans and credit lines into their shops, only to battle for survival each year.

On top of that, the Dutch people became bored with seeing the same shops and store chains over and over again in whatever shopping centre they visited. The same HEMA’s, Blokker’s, V&D’s, Scapino’s, Kruidvat's, C&A’s and whatever other store chains there are in The Netherlands. As a consequence, the Dutch shopping centres offered as many pleasant surprises for the Dutch fun-shoppers as the annual letter from the Internal Revenue Services for a hard-working American.

That many of these problems have not been solved, in the two years that passed since that article was published, becomes clear in the following two articles, by respectively BNR News Radio and De Telegraaf. Here are the pertinent snippets of these articles, accompanied by my comments:

In 2015 the rental rates for stores in The Netherlands have dropped for the sixth year in a row. In average the rates dropped by 2.1%, according to CRE-advisor Jones Lang LaSalle (JLL) last Saturday [Saturday, December 26th – EL].

In the large majority of the shopping streets the landlords felt the need to further decrease the rental rates. This happened in spite of the clearly growing economy and the improved consumer confidence of 2015. The rental rates of store space dropped slightly less strong than in the previous year [2014 – EL]. In that year JLL still signalled a rate drop of over 2.5%.

Exception was Amsterdam, where the average rates in 2015 increased(!) by 2.6%. Especially in the famous P.C. Hooftstraat, the prices soared by 10% to €2,200 per square meter.

So the fact is that the absolute Triple-A locations (i.e. ”Amsterdam, Amsterdam, Amsterdam”) show rising (or even soaring) rental rates, while the rest of the country still has to cope with dropping numbers of shop visitors and consequently dropping rental prices. 

Even though it becomes clear that the economic crisis indeed starts to fade, many Dutch people are still very reluctant to spend their money in the B&M stores or rather do their shopping on the online channel, where the discounts are often much higher. One of the undeniable reasons for this could be that the Dutch average wages have hardly risen for over 10 years (charts!):

This news from CBS about the structural decoupling between productivity growth and wage growth in The Netherlands is not surprising by itself. Yet, it is a tell-tale signal about how wage restraint and its ugly brother wage reduction, as well as the ubiquitous flexibilization of the labour market have nibbled away purchase power from the Dutch middle class and lower class workers.

In spite of their annually increasing productivity since at least 2002, the workers mostly did not received the justified remuneration for this.

As a matter of fact, for younger workers the fixed job contract has nearly been sacrificed in favour of payrolling, temporary labour contracts, temporary assignments through temp agencies, zero hour contracts and freelance contracts. These are all contracts that all offer only a little amount of security for the workers and – on top of that – make it very hard for young workers to demand higher wages, as the CBS press release already stated.

This situation is far from unique for The Netherlands; to the contrary, this phenomenon can be seen everywhere in Europe.

To these eyes, this flexibilization of the labour market and the decoupling between productivity growth and wage growth are two of the reasons that it seems impossible to bring the inflation back to the “close to, but not quite 2%” inflation as desired by the ECB. Therefore both circumstances lay considerable downward pressure on the inflation rates.

This enduring situation will continue to last for a long, long time when large and small companies do not decide to structurally raise the wages of their (temporary) personnel and freelancers by at least 2% per year for a number of years in a row. The ten years without serious wage increases in The Netherlands, in combination with the ever greedier central and local governments, have steadily empoverished the Dutch middle and lower classes and took away their urge for consumption.

Nevertheless, it seems that the Dutch cities and municipalities have yet again failed to learn their lesson, hungry as they are for more real estate sales, tax and parking euro’s.

This becomes clear from this Telegraaf article:

Building for vacancy

The current carnage among store chains does not withhold cities and municipalities from developing on a large scale plans for new shops and shopping malls. Currently there are plans for new shopping space to the tune of almost 1.2 million square meters, according to retail organization Detailhandel Nederland.

In advance of the defaults of department store chain V&D, drugstore chain DA and the shoe stores Manfield, Invito, Scapino and Dolcis, the average vacancy rate in The Netherlands was already 7.5%. The effects of these recent defaults on the national shopping space vacancy are yet unknown. Real estate owners and retailers are outraged by the excessive ambitions of municipal authorities and fear that the new shops will cannibalize on the existing ones.

This outrage of the existing shopowners is so logical. Too often they have been pushed around by city officials and too often they have been promised mountains of gold, only to remain stuck with enormous debt and too little customers

In at least one case it even seemed that a city tried to double-cross its existing shop owners, by promising that a new, to-be-developed shopping centre would be a specialized centre, that would not cannibalize on the existing shops. When the plans for this new shopping centre were closely inspected, however, it became clear that it contained exactly the same shops as in the already existing shopping centres of the city. When this shopping centre would indeed have been developed, it would definitely have cannibalized upon the existing shops in the other shopping centres.

On top of that: everybody in their right minds should know that there is a substantial excess in shopping space and that there is no reason whatsoever to further increase this number by 1.2 million square meters. Therefore the Kamikaze strategy of Dutch cities and municipalities 'to build shops until they drop' must come to an immediate end. Such plans are really outrageous and dangerous nowadays.

To the contrary, the only way to remove the overkill in shopping meters would be to demolish old, ugly and/or increasingly impopular shopping malls, in favour of other shopping centres that are already reasonably successful. 

By redividing the store owners of the to-be-demolished shopping malls over the vacant shops in the more successful shopping malls, this plan offers for everybody a decent opportunity to benefit from such an operation. Only with a dramatic reduction in shopping space, the Dutch brick & mortar shopping landscape could become healthy and flourishing again. 

However, this will be a bitter pill to swallow for many municipalities and cities in The Netherlands, as many shopping centres are monuments for the egos of city officials, who all want to leave their own landmark in their cities and villages.

I want to finish this article with a glimmer of hope; something that could turn out very good in the end. The following snippets are from De Volkskrant:

The ‘chain store-ization’ of the Dutch shopping streets – with from a distance ever the same, dull store chains – seems to have come to a stand-still and is even cautiously declining. In the most expensive shopping streets the leading store chains are still in the lead, but in the surrounding of these streets, more and more independent entrepreneurs open a shop.

One store chain after another defaults. That is not bad, as a matter of fact, as a visit to shopping centre In De Bogaard in Rijswijk (a town close to The Hague) learns [there is a separate article for this behind the link - EL].

Gertjan Slob, research director of Locatus, expects that the decline of the number of store chains will continue in 2016. “The world gets more and more dynamic. Individual retailers can act faster to imminent change than the sluggish store chains can”.

The number of chain stores declines especially in the less popular streets and in the small cities and villages, according to Slob. ‘In the leading streets, the chain store-ization continues unabated. There is even an internationalization going on overthere, due to the establishment of popular foreign store chains in The Netherlands. 

Yet, on B and C locations, there is a genuine renewal of the supply in stores going on. Due to the considerable vacancy of store space, it is easier for entrepreneurs to find new shopping space, although the rents do not decline impressively yet.  

This is a very good development indeed. New shops can introduce new shopping formulas and crazy new ideas. They might pleasantly surprise the fun-shoppers and take away much of the boredom that the well-known store chains brought to the regular shopping centres. Many of those new shops will perish perhaps, but the best might introduce the shops of the future.

And also these new, original shops bring back some of the dynamics that shopping in The Netherlands traditionally had. They often share bright, new ideas with a keen eye for the needs of the customer, in combination with a desire ‘to try harder’ than their chained competition.

In my humble opinion, the most successful future shops could be the ones that are really different and fill in a void in the market; eventually in combination with an online store.

Shops with for instance old-fashioned wooden toys or with high quality electronic toys and appliances from Germany. Or shops with tailor-made clothing or with artisanal products than can’t be purchased anywhere else.

My best guess: as a long-term avid music-lover and audio addict, and while looking at the recent trends on Youtube, I would open a vinyl record store(!) with – perhaps even – a production facility for top-notch, small edition vinyl records of impeccable quality. 

It seems that an increasing group of people is getting fed up with ‘online’ and ‘virtual’, when it comes to music and increasingly choose to have a large, clumsy vinyl record in their hands, that they play on a beautiful turntable and a high end hifi set. 

Perhaps it will become one of the leading trends in 2016 for people to return to ‘real’, ‘tangible’, ‘artisanal’ and ‘original’, instead of mass-produced, virtual, online and ‘part of a large chain’. You know where you heard it first!

No comments:

Post a Comment