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Europe’s prowess as an appealing and lucrative retail market continues, as international retailer expansion accelerates across major cities.

March 2015

Multi-speed economic recovery in Europe is laying the foundation for retailer expansion across the continent. Europe is home to some of the world’s fashion powerhouse cities like London, Paris and Milan, so it’s no wonder that international retailer expansion in key retail markets has continued rapidly in the last two years.

Although it hasn’t been without its drawbacks, JLL’s ‘Destination Europe 2015’ report says that while rewards are plentiful for those retailers who are successful, the risks associated with getting expansion wrong are sizeable.

One country which has managed to get expansion right is the U.S., having knocked Italy off its spot as the number one exporter to Europe in the last year. U.S. retailers now account for over 18% of total international retailer presence in 57 European markets.

One thing is certain, major cities in Europe continue to demonstrate high tourist numbers, diverse and positive market fundamentals, making the continent an attractive destination for international retailers to set up shop.

LONDON: SPRINGBOARD TO EUROPE

JLL lists London as Europe’s leading retail market. The English city cements its position as a global retail powerhouse.

“London is home to more international retailers than any other city in Europe. The UK’s capital continues to be a magnet for retailers thanks to its unique blend of retail market size, maturity and high degree of market transparency, all of which contribute to a long history of success for international retailers,” says the report.

Dominic Bouvet, EMEA Retail & Leisure Director at JLL explains that the city offers a unique mix of affluent local consumers and the highest tourist figures in Europe.

“There are numerous locations across London that are established retail areas and deliver strong sales densities, such as West End, Covent Garden and the two Westfield Shopping Centres. This allows retailers to achieve critical mass, without cannibalising trade,” says Bouvet.

JLL indicates that London’s appeal and retail friendly market make it a springboard to Europe and the city’s latest and notable entrants – such as Tom Ford, J Crew, DSquared2, The Toy Store, John Varvatos, Karl Lagerfeld and West Elm – are evidence of this.

EXPANSION TRENDS

After entering Europe’s top tier retail markets, retailers are selectively expanding deeper into mature markets and then into growth markets. Whilst borders are becoming less of a barrier, retailers have become more diligent when considering new opportunities.

“Retailers continue to focus on the prime high streets and shopping centres. The truly international brands, such as Inditex, Mango and H&M, are demanding larger and better configured units, as they continue to offer new concepts and product lines,” says Bouvet.

Over the last year JLL has witnessed a significant amount of churn in the market.

“As a general rule, for every two stores opened across Europe, one store has closed down. Churn was particularly notable in Europe’s recovery and growth markets, where retail sales have suffered since early 2009,” says the report.

Bouvet explains that getting expansion wrong for retailers is not only about the financial implications that it comes with.

“The main issue for retailers is ‘tarnishing the brand’. This is why retailers are spending more time doing due diligence on new territories before acquiring stores.

“But despite challenging trading conditions, strong brands such as 7 For All Mankind, Cos and Michael Kors continued their expansion across Europe. More recently, we have seen a significant uplift in demand from these retailers and others, trying to take advantage of affordable prime retail space in recovering economies, including Dublin, Madrid and Milan,” says Bouvet.

Other trends making their way into the European market is a heavy investment in technology, which experts predict could become an increasingly important factor for many retailers as competition stiffens, on both the physical and virtual sales front.

Bouvet says that retailers are trying to be multi-channel operators; however the physical space remains the primary source of sales.

“As an example, UK online retail sales accounted for only 11.5% of all retail sales in November 2014 and this was the highest in Europe,” he adds.

AGGRESSIVE U.S. EXPANSION

Having taken the title of the number one retail exporter to Europe away from Italy, U.S. retailers have expanded more aggressively in Europe since 2013.

Bouvet believes that the new shift towards aggressive U.S. retailer expansion may be indicative of changing consumer behaviour.

“Nowadays, consumers have huge knowledge of and access to international retail, due to regular travel and access to the internet. U.S. retailers are aware of this and appreciate that their brand is well-known across Europe, often before they have even opened stores,” says Bouvet.

A recent CBRE retail report confirms that retailers from the U.S. continue to dominate cross-border retailer expansion.

“Some 40% of cross-border movements by retailers based in America were in Europe and 35% were in Asia. The majority of these cross-border movements were by U.S. retailers, reflecting the maturity of their home market and their need to enter new markets to grow their business,” says the report.

CBRE also names London as the top target for American retailers. “The proportion of American retailers that have a presence in London has risen 4.2% since 2012, and as a result two thirds of retailers based in the Americas are now present in the UK capital,” says the CBRE report.

EMERGING RETAIL DESTINATIONS

According to the JLL report Moscow – despite the geo-political risk – and Istanbul have become “Europe’s success stories” as no other cities have attracted as many entrants over the past two years.

Bouvet explains that consumer spending power in Moscow is huge, and the strong international retailers are still seeing strong sales growth. “Both mass market and luxury retailers continue to grow their portfolios in Moscow. This is attractive to investors as it creates demand, which ultimately improves rental growth,” he says.

More significantly, an increasing number of retailers are considering Istanbul as a first point of entry into the continent due to its modern shopping centre stock, landmark schemes and favourable demographics.

JLL’s ranking of Europe’s most attractive locations for international retailers

1: London

The city continues to rank as Europe’s most attractive location for international retailers. Limited supply of stock, particularly on Bond Street, has driven rental growth throughout the last two years.

2: Paris

In recent years rents at Avenue des Champs-Elysees have soared to record breaking levels as demand far exceeded supply. Luxury retail is one of Paris’ strongest growing sectors.

3: Moscow

While consumer demand remains relatively robust, there are clear downside risks for retailers as a result of a weaker local currency and rising inflation.

4: Milan

Industrial, commercial and financial capital of Italy is Europe’s fourth most attractive location for international retailers. Premium and luxury retailers are attracted to the city.

5: Madrid

Gran Via and Preciados form Madrid’s most famous retail destinations and house numerous flagship stores from top fashion brands.

6: Rome

In recent years, the retail market has proven to be dynamic, fuelled by an increased demand from national retailers in response to the rising interest from international retail brands.

7: Istanbul

The retail market is revolutionising at great speed, driven by several new world-class retail destinations, which are attracting top international retailers to both the European and Asian sides of the city.

8: Munich

The affluent customer base has led to high retail spend per capita. The most sought-after high street locations in Munich are Kaufingerstrasse, Neuhauser Strasse and the area around Marienplatz, all of which benefit from high footfall.

9: Berlin

The German capital’s retailer demand is boosted by a positive economic growth outlook, attractive catchment area and high volume of tourist visits. Berlin’s most vibrant retail destination is Hackescher Markt.

10: Barcelona

The Spanish city experiences high tourist numbers and is one of the top ten most attractive European cities for retail trade and investment.

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