High Street Retailing - July 2010

”Fashion is architecture:

It is a matter of proportions.” Coco Chanel

Can Poland cut it?

2 On Point • High Street Retailing • July 2010

Polish High Street Retail: Evolution or Revolution?High street retailing has undergone an evolution since 1995, in line with wider changes to the retail picture in Poland, albeit much slower and to a lesser extent. Renowned national and international brands, cafes and restaurants have all populated city centres, replacing reminders from the Communist era. Luxury, high-end brands in particular have a preference for high street locations over regular shopping centres reflecting their strategy on home markets of Italy, France and Germany.

There are certain areas of Polish city centres which are natural retail destinations featuring high pedestrian flow. These are typically areas in a close proximity to the main touristic attractions of the cities’ such as Main Square (Rynek) in Kraków, Wrocław, Poznań or Royal Tract (Krakowskie Przedmieście Street - Nowy Świat Street) in Warsaw. Also the vicinities of major transportation hubs defines an interesting and natural high street retail destination, which is most pronounced in Katowice with retail located in the area of the main train station (PKP). Revitalisation and re-development of old, neglected central parts of the cities’ is another incentive for retailers to open in downtown areas. Again Katowice can be referred to as an example with Dworcowa and Dyrekcyjna streets clearly gaining on importance following the refurbishment of the old historic Monopol hotel, and are likely to attract more high-end retailers in the future.

Warsaw, Three Crosses Square

This report examines the high street retailing in major Polish cities of Warsaw, Kraków, Wrocław, Poznań, Tri-City, Katowice and Łódź. The following central parts of the cities were included in the research:

• Warsaw: Marszałkowska, Nowy Świat, Three Crosses Square (Plac Trzech Krzyży), Chmielna, Mokotowska;

• Kraków: Old Town Square (Rynek), Grodzka, Floriańska; • Wrocław: Old Town Square (Rynek), Świdnicka, Oławska,

Kiełbaśnicza; • Poznań: Old Town Square (Rynek), Paderewskiego, Półwiejska; • Gdynia/ Tri-City: Świętojańska; • Łódź: Piotrkowska; • Katowice: Stawowa, 3 Maja, Dworcowa, Dyrekcyjna, Św. Jana,

Staromiejska, Szewczyka Square, Młyńska. City differentials

The field research undertaken allowed us to determine the retail mixes on each of the main street included in the report, high street retail mixes on a city level as well as an aggregate retail mix for Poland.

The „clothing, footwear & accessories” category dominates retail mixes on all the markets with shares between 21% and 35% of the total number of high street stores on a given market. On average, this retail category accounts for 30% of the total number of unit shops on the Polish high street. The clothing, footwear and accessories category is best represented in Warsaw (35%), Poznań (34%), Kraków (32%) and Katowice (32%) and Wrocław with 21% seems relatively underrepresented in this respect.

Numerous fashion boutiques are outlet stores, which is particularly pronounced for Chmielna street in Warsaw, Piotrkowska street in Łódź, and to a lesser extent, Świętojańska street in Gdynia.

Interestingly, luxury high-end brands tend to form clusters. This is visible in Warsaw around Three Crosses Square, Main Square and Grodzka street in Kraków, on Paderewskiego street in Poznań and aforementioned Dworcowa and Dyrekcyjna streets in Katowice.

Wrocław (31%), Kraków (29%) and Poznań (29%) have an extensive selection of cafes, restaurants, bars and pubs, with 47, 82 and 54 units operating on these markets respectively. The lowest share of this category is registered on Świętojańska street in Gdynia (10% of units) and in downtown Katowice (11%).

On Point • High Street Retailing • July 2010 3

Świętojańska street in Gdynia is dominated by service operators (nearly 24% of units), of which the main occupiers are banks and providers of financial services (11%). In addition, also Piotrkowska street in Łódź (23%) and the Wrocław high street area (22%) are home to numerous service units.

Świdnicka / Oławska street and Main Square in Wrocław (15%) and Piotrkowska street in Łódź (12%) are preferable locations for banks. The smallest representation of banks is registered in Warsaw and Kraków (approximately 2% each).

Unit shops broken down by retail categories

8%

30%

21%8%

9%

4%

5%

7%7%Household goods and accessories

Clothing, footwear and accessories

Gastronomy

Banks and financial services

Services

Groceries

Vacant units

Health and beauty

Other

Source: Jones Lang LaSalle, May 2010 Is vacancy a problem?

The vacancy rate as defined as the number of unoccupied units compared to the total number of retail units on the high streets is currently at approximately 5%. Łódź (18), Warsaw (17), Katowice (17) and Gdynia (16) feature the highest vacancies while only two empty unit shops were identified in Poznań. There are clearly more vacant units on Polish high streets now than two years ago – a clear consequence of the economic slowdown and retailers retrenching in 2009 rather than expanding. Notably, the bankruptcy of Galeria Centrum brought about fundamental changes on the retail scene. However, the slowdown also created room for new tenants to arrive in city centres, such as Marks&Spencer and TK Maxx in Warsaw.

Vacancy rate (%) and number of empty unit shops

Source: Jones Lang LaSalle, Maj 2010

Capturing power and attractiveness of high streets varies greatly between cities. Often only a short stretch of the street enjoys retailer demand. This is the case of Marszałkowska street in Warsaw where popular mid-market brands such as H&M, C&A, Reserved, M&S, Mexx, Esprit are located on ground floors of department stores of Wars, Sawa and Junior. The remaining part of this street is much less appealing to retailers. A similar situation is in Kraków, where particularly attractive to retailers is a 150 metre stretch of Grodzka street neighbouring the Main Square. Conversely, the high street retail in Katowice is far more balanced and spread across Stawowa, 3 Maja, Dworcowa, Dyrekcyjna, Św. Jana and Staromiejska streets.

Kraków, ul. Grodzka

Kraków and Warsaw: leaders in Poland but trailing in Europe

Attractiveness of high street area differs significantly between particular cities and, most notably, areas of the cities. This is clearly reflected in rental levels, as shown on the following graph. The highest prime rents are achievable in Kraków (€85-€95/ sq m / month), where high street retailing is most developed, and in Warsaw (€75-€90). Łódź (€25-€30/ sq m/ month) and Gdynia (€35-€40) command the lowest rental levels, being a function of smaller retailer demand for high street units on these two markets. 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Poznań

Krakow

Warsaw

Gdynia

Wrocław

Łódź

Katowice 17 units

17 units

2 units

18 units

9 units

16 units

10 units

4 On Point • High Street Retailing • July 2010

Prime high street rents (€ / sq m / month)

€ 0 € 20 € 40 € 60 € 80 € 100

Kraków

Warsaw

Wrocław

Poznań

Katowice

Gdynia

Łódź

Source: Jones Lang LaSalle, May 2010

For comparison, prime rents in West-European cities range from €310/ sq m/ month in Munich, €270 in Frankfurt, €220 in Madrid, up to €625 in Paris and €650 in London.

Also prime rents in the CEE capitals are above that in Poland, e.g. in Budapest prime rents on Vaci Utca street are €120/ sq m/ month, while in Prague on Parizska street they stand at €150.

Prime high street rents (€ / sq m/ month ) in major European cities

0 100 200 300 400 500 600 700

WarsawKraków

BudapesztPraga

AmsterdamBarcelona

MoskwaMadryt

MediolanFrankfurt/MMonachium

ParyżLondyn

Source: Jones Lang LaSalle, Q1 2010

Retailers’ perspective In order for our research to be as comprehensive as possible, Jones Lang LaSalle carried out a survey amongst retailers who operate high street shops in Poland. We questioned 60 retailers representing various categories to reflect the realistic profile of high street retail in Poland.

For the majority of the survey respondents the main Polish cities were focal points of interest in this respect with 88% of them active in these cities. One third of the retailers who responded to the survey have opened their boutiques also in cities sized 100 000 – 400 000 residents, and 25% of them have entered cities smaller than 100 000 people.

High Street Positives

According to the survey results, unit shops on the high street do not offer direct competition to the stores in regular shopping centres. Conversely, they are seen as an additional sales and distribution channel. Moreover, incentives and reasons for opening a high street store are completely different from those underlying decisions to enter a particular shopping centre. Retailers choose locations in the high streets for several reasons, with the most important being:

• enhancement of brand awareness (marketing tool); • capturing of new target group of customers; • lack of a properly positioned shopping centre matching the profile

of a given retailer.

Other reasons behind opening a high street shop are lower rents compared to the shopping centres, lower personal costs resulting from shorter opening hours, strategy of a mother company regarding high street locations, high footfall figures in the high streets, and last but not least, the lack of interesting offers in the target shopping centres.

Incentives to open a high street store

Source: Jones Lang LaSalle, Survey among retailers, April – May 2010

0% 10% 20% 30% 40% 50%

Other

Lack of appropriate

Targeting new customer groups

Brand awareness enhancement

Other:

• Rents lower than in shopping centres

• Lower labour costs

• Flagship on high street – brand

• Lack of sufficient offers in existing shopping centres

• High footfall figures

0% 10% 20% 30% 40% 50%

Other

Lack of appropriate

Targeting new customer groups

Brand awareness enhancement

Other:

• Rents lower than in shopping centres

• Lower labour costs

• Flagship on high street – brand

• Lack of sufficient offers in existing shopping centres

• High footfall figures

On Point • High Street Retailing • July 2010 5

High Street Negatives

Surveyed retailers are of the view that the expansion on high streets is associated with a number of constraints. These include:

• insufficient critical mass of high street retailing resulting from underrepresentation of quality brands in these areas of cities;

• lack of unit shops meeting occupiers’ requirements; the need for serious capital investment to up-grade the unit and its frontage;

• expected lower footfall than in shopping centres; • unsatisfactory level of turnover; • too high rents on high streets; • higher operational costs e.g. increased security; • low number of or zero parking spaces; • limited influence on immediate neighbourhood; • expansion strategy of some companies not allowing to open more

than one unit shop per city. High streets v. shopping centres

Reliable comparison of rents and turnovers achievable on high streets and in shopping centres is extremely difficult. This is because of a relatively small group of retailers trading in the high street area and the shopping centres on the given market, diversity of premier retail streets in Poland and specifics of retailers.

Our research proves that generally higher sales per sq m are generated in shopping centres - 79% of the respondents claim so. However, 21% of the retailers surveyed express the contrary opinion and these are likely to be retailers trading on best high streets of Warsaw and Kraków. It means that 21% of questioned retailers achieve higher turnovers per sq m on the premier retail streets, despite the fact that shopping centres have longer opening hours, more convenient access and parking facilities, and pedestrian flow is higher and more balanced throughout the year.

Turnovers of stores trading in city centres are somewhat affected by the seasonality factor, peaking off over the Spring/ Summer time. However, this effect is not as dramatic as one may think. Potentially lower sales over the Winter time e.g. from fashion retailers resulting from less tourists shopping are compensated through sales of merchandise of higher value.

Relation between turnovers per sq m on the high street and in shopping centres Turnovers on the high street: Source: Jones Lang LaSalle, Survey among retailers, April – May 2010

Prime high street rents are similar to that in best performing shopping centres on a given market. This view is represented by 42% of respondents. Another 39% of retailers claim that rents on premier retail streets are below that achievable in shopping centres; this presumably applies to the stores on the market in Łódź, Gdynia, Katowice and Świdnicka street in Wrocław. The smallest group of retailers are of the view that the high street rents are above that in retail galleries, and this opinion is likely to be expressed by occupiers in Warsaw and Kraków. Relation between rents per sq m on the high street and in shopping centres Rents on high street are: Source: Jones Lang LaSalle, Survey among retailers, April – May 2010

Our research clearly demonstrates that unit shops do not offer direct competition to the stores located in shopping centres, but are additional sales and distribution channels. Through a proper marketing of premier retail streets in Poland, and creating a trend for high streets amongst occupiers, landlords and shoppers, it is – in our view – possible to increase retail sales in Poland. This is proved by observations from survey respondents. 78% of the retailers

12%

33% 33%

21% represent less than 50% of turnover per sq m in a shopping centre are lower by 21-50% per sq m than in a shopping centre are lower up to 20% per sq m than in a shopping centre represent more than 20% of turnover per sq m in a shopping centre

39%

42%

11% 0% 8%lower than in a shopping centre of good quality on a comparable level

higher up to 10% higher by 11%-20%

higher by 21%-30%

6 On Point • High Street Retailing • July 2010

surveyed did not register a drop in turnover levels in the shopping centre stores following the opening of a high street store on a given market. Moreover, only 31% of respondents were forced to close their store on the high street after opening in a shopping centre in the same city, and nearly 70% have successfully continued activity in both of the retail formats.

What can be done to raise retail sales, increase turnovers and improve the image of Polish high streets among customers? Each of the city centres is unique in its character but they all feature high pedestrian flows. Revitalisation of downtown areas would certainly increase the dwell time of customers in the city centres, at the same time raising the profile of high street retailing. In order to achieve this aim, several steps should be undertaken whereby a support from local authorities plays a key role. According to the feedback from high street occupiers, the most important areas for improvement are:

• lack of parking facilities, the need for well accessible parking spaces in the vicinity/ at the rear of the premier retail streets;

• improvement of technical conditions of buildings along central retail streets, refurbishment of neglected facades;

• classification of buildings’ ownership status, which currently disables applying a consistent leasing policy.

The current situation whereby city centres are often quadrants with old neglected buildings and facades, where next to a high-end boutique with luxury apparels there are “kebab” bars, should be changed. Let’s take an initiative. An interesting example of the initiative, albeit abandoned, is Piotrkowska street in Łódź (currently a walking passage), where local retailers intended to revert the car traffic into this street. Let’s create a fashion for high street shopping. Let’s make use of a downtown pedestrian flow potential. Let’s keep and entertain people in city centres with shopping and gastronomy.

Our experience is that although the high street rents are higher, the turnovers per square meter are higher too…

We are present on the main high street in Krakow and we plan to continue to develop in this direction, since high street locations is what our Italian and German business partners expect. They simply associate the prestige of a brand not with a shopping centre, but with a high street, namely Grodzka Street in Krakow, which is a widely recognisable street.

When looking for an appropriate location we take into consideration a blend of factors such as the prestige, the exposure and the width of a shop window, the technical condition of a shop and its adaptation possibilities. In town centres, shop units are often located in old, historic buildings, thus all changes must go through many procedures and approvals from a heritage conservator. Even a simple logotype over a shop entrance may grow to a problem.

Speaking about problems with securing a high street location, a strictly limited supply is one of these. Let’s take Krakow as an example; our interest is restricted to Grodzka Street, and to be precise, only its 100 m long stretch. This requires from us a constant monitoring of places where we want to be. Insufficient number of parking spaces and zones with restricted parking are also problematic. The development of widely available parking areas would boost sales and raise competitiveness of high street retail.

However, the fundamental incentive to enhance the image of high streets is the improvement of technical condition of buildings and renovation of facades. What is also discouraging in respect of a high street shops is the lack of control over neighbourhood, which is typically one of the competences of shopping centre managers.

Our experience shows that the high street rents are up to 20% above those in the shopping malls. We also register a higher turnover per square meter on the high street despite the fact that shopping centres have longer trading hours, easier access and higher and more stable footfall figures. Iwona Kasprzyk, Mirage* * Brands under Mirage’s umbrella: Warsaw: Paul & Shark, Marina Rinaldi, Katowice: Marc Cain, Marina Rinaldi, Mirage – multibrand store (Furla, Dolce & Gabana, Richmond, Francesco Biasia etc.), Kraków: Max Mara, Marina Rinaldi, Paul & Shark, Escada.

Warsaw, Nowy Świat

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On Point • High Street Retailing • July 2010 7

Conclusion City centres and main, centrally located streets set out on p. 2 of

this report, are natural retail destinations. This is where the natural pedestrian flow peaks.

Shopping centres, most notably those in out-of-town locations,

are struggling for customers; they also have to ensure a good connectivity with residential districts/ catchment area and availability of public transportation means.

Downtown areas have all the attributes mentioned above. They

offer a unique, and most importantly natural retail potential which should be promoted and built upon.

Polish city centres should be local focal points drawing

customers by a wide retail and catering offer similarly to what is observed in the major cities of UK, Italy, Germany and France.

The enhancement of the high street areas would also raise

competitiveness of the Polish cities in a race for new, strategic investors representing the business process outsourcing/ shared services centres (BPO/ SSC) sector. It is not seldom that the macro-location is assessed by a potential investor based on the quality of living soft factor, which is correlated to how Polish high streets look.

High street locations are prestigious and Italian brands are accustomed to their stores being right there...

The expansion of our company is via shopping centres as well as high street shops. We have decided to open in Warsaw, Krakow, Poznan, Katowice and Wrocław, because high streets locations in these cities are prestigious, and Italian brands are accustomed to their stores being right there…

City centre retailing is currently undergoing changes, which are often not to our benefit. There is a clear shortage of downtown places associated with fashion retailing. A large portion of Polish main streets have been dominated by banks, mobile phone operators, gastronomy concepts of all kinds, and are therefore not particularly appealing to us.

Among typical problems with a search for an interesting high street location are poor quality of neighbouring stores, lack of parking possibilities and complicated legal status of the premises, often too difficult for us to accept.

However, Italian brands are accustomed to high street locations being home to high-end brands. Stores of luxury retailers operate on the high streets of Milan, Paris or London. Shopping centres are simply not the target location for brands such as Max Mara, Versace or Armani. Our Italian partners aspire to open flagship stores on up-market positioned stretches of city centre streets.

We are looking for units in areas already established as fashion clusters with some critical mass. We believe that main streets in biggest cities such as Nowy Świat St. in Warsaw, Paderewskiego St. in Poznan, Dyrekcyjna / Dworcowa St. in Katowice, Grodzka St. and Main Market Square in Krakow will develop in this direction.

In smaller cities, which still lack properly positioned shopping centres, we are opening our stores in retail clusters, where the city life is. These usually tend to be market squares, main pedestrian routes and high streets.

If Polish high streets are to gain on representativeness, this shall be based on a long term strategy, included putting in place necessary infrastructure, especially parking places. This is once of the main challenges for retailers as well as their customers. Angelika Pranke, R&D Poland/ OWL International/ TRS Polska* * Brands under the umbrella: Max Mara, Marella, Pennyblack, Tru Trussardi, Liu Jo, Patrizia Pepe, Armani Jeans, Pinko, Versace Jeans, Furla, Francesco Biasia, Ice Iceberg.

Rome, Via Condotti

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8 On Point • High Street Retailing • July 2010

We are searching for an interesting concept to draw customers to city centres and offer them add-on value, a unique shopping experience compared to what they typically have in shopping centres… Opening stores in best available locations in the city is a part of our development strategy. High streets are part of this strategy, thus our shops are present there.

A good visibility and exposure are critical in our search for new high street locations thus our natural choice are corner buildings, if possible. Another important factor is the prestige of the location. Other elements that we take into account are the relocation of space across the storeys, availability of ground floor area, storey height, and last but not least, the quality of the premises. We are always trying to create a unique shopping atmosphere for our customers; this is why we arrange our shops in a way that offers something exceptional.

H&M expansion plans are not specified as to the number of new openings in the future. Our ambition is to grow approx. 10-15% annually; this is why we are always looking for new locations, but only for the really best ones. We are thoroughly reviewing market offers; however, if we are not convinced to a particular location, we simply reject it and wait for a better opportunity.

An interesting case is our store in Katowice on Stawowa Street. After the opening, the footfall and retailing street increased and, additional services and gastronomy points arrived. I think that at present the retail in Poland is shopping centre driven, and high street retailing is further down in the retail hierarchy. H&M aims to launch stores, which will draw people not only by their offer, but also the atmosphere of a place, some form of additional value. Opening of stores with a fresh design idea or a revitalisation of a building in a market square, tenement house on a high street is an interesting idea to draw different group of customers and offer them more than a regular shopping centre experience. Filip Pietkiewicz-Bednarek, H&M

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John Duckworth Managing Director CEE Jones Lang LaSalle +48 22 318 0044 john.duckworth@eu.jll.com

Anna Bartoszewicz-Wnuk Associate Director, Head of Research Jones Lang LaSalle +48 22 318 0007 anna.bartoszewicz-wnuk@eu.jll.com

Patrycja Dzikowska Senior Researcher Jones Lang LaSalle +48 22 318 0003 patrycja.dzikowska@eu.jll.com

Edyta Potera Associate Director, Retail Agency Jones Lang LaSalle +48 22 318 0046 edyta.potera@eu.jll.com

High Street Retailing – July 2010 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends.

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