Can US retailers find inspiration in Europe?
With the rise of onmichannel retail, a thriving industry in Europe is driving fresh thinking in the U.S. about how to adjust to the future of shopping.
As the rise of e-commerce transforms brick-and-mortar retail on both sides of the Atlantic, a thriving industry in Europe is driving fresh thinking in the U.S. about how to adjust to the future of retail.
For a variety of embedded, structural reasons, European retailers have been able to adapt faster to the demands of today’s omnichannel customer than their U.S. counterparts, according to a new report by JLL.
“Europe’s retail industry is ahead of the curve in adjusting to the challenges facing shopping centers around the globe,” says James Cook, Americas Director of Retail Research at JLL. “That’s not to say the U.S. isn’t innovating. We’re seeing lots of exciting growth happening here, as retailers are increasingly finding ways to embrace change.”
In fact, despite recent headlines highlighting major chain closings, Cook says many U.S. retailers are experiencing genuine growth—particularly discount department stores, specialty stores and online-to-store experiences. Top-tier shopping centers currently boast some of the lowest vacancy rates they’ve ever had. And about 5,500 new stores are expected to open in the U.S. in 2018 alone, according to JLL research.
Five keys to success in Europe’s retail industry
With U.S. retailer and mall operators facing many new challenges and opportunities, keeping a close eye on what retailers in other markets are doing can pay dividends. Yet, as Cook points out, the U.S. is very much its own market with its specific cultural, economic and political factors which all need to be taken into account when making strategic decisions.
- Mix it up—with live, work, play shopping centers
The father of the shopping mall, Victor Gruen, never considered his vision complete, according to Cook’s recent podcast on the topic. He envisioned a mall as a center of community, with people living in and around it, rather than as the shopping fortress it became in the U.S. Europe’s shopping centers, however, are much closer to his vision, with shops more often integrated in communities.
This mixed-use mentality is now taking off in the U.S. For example, when Lord and Taylor pulled out of a major town center in Michigan, Starwood Partners leased the space to Ford Motor Company, which then renovated the store into a modern workplace for 1,800 employees—filling the vacant space while also bringing in new diners for the center’s restaurants. Similar mixed-use districts are popping up in cities around the country. “Today, Gruen would probably be pleased to see his vision is finally taking off in the U.S., with shopping centers becoming a vibrant part of the communities around them,” says Cook.
- Invest in big picture, macroeconomic planning
Compared with the U.S., European policy makers have traditionally taken a more restrictive approach to retail development. This rigorous urban planning has acted as a safety net, restricting overdevelopment and relieving pressure on retailers to close when market winds shift.
“Before the last recession, we had a large amount of new retail properties built in the U.S., often as speculative construction,” says Cook. “In contrast, city planning in the UK doesn’t typically permit multiple competing shopping centers in areas that may not be able to support them all in the long run.” Stricter regulatory policy may not be the answer in the U.S., but lessons across Europe point to potential benefits of more conservative planning.
- Rethink the anchor store
Larger shopping centers in the U.S. often devote roughly half of their space to department stores. In Europe, department stores occupy about one third of space, with flourishing restaurants and grocery stores taking more anchor spots. This is a new, but growing trend in the U.S., too, from the Galleria in Houston, where Fig & Olive and Nobu will each soon occupy space in the former Saks Fifth Avenue, to other creative reuse projects from virtual reality arenas to healthcare clinics.
“As department stores move out of anchor spaces, we will see shopping center owners lease that space to new types of tenants, or repurpose that space for other uses such as offices or e-commerce fulfilment,” says Cook.
- Diversify the offerings
Millennials are inspired by authenticity, not commoditization. Europe has distinct cultural, geographic and economic differences between its markets, giving a natural diversity to its retail landscape. The U.S. retail industry, in contrast, sees many similar retailers competing for the same consumers as the sheer abundance of space and number of markets makes chain retail strategy entirely pragmatic. “Chain retailers are stars in U.S. retail, and that won’t change,” says Cook. “But, many of them are finding new ways to make their local outposts stand out.”
- Make online and physical locations work for, not against each other
Online sales needn’t pose a threat to physical stores—in fact, they can support them, when retailers adopt an omnichannel approach and offer great in-store experiences. “Retailers in Europe have been perfecting a unified supply chain, where physical and online stores use the same distribution systems, says Cook.” At the UK’s John Lewis, for example, online sales now account for more than 40 percent of its total sales, with ‘click and collect’ growing strongly. The U.S. is picking up its pace, too, with Walmart, for instance, now offering click and collect from all its stores.
With retail change, comes innovation
While U.S. and European retailers operate in vastly different landscapes, they share a commitment to modern customers, who want convenience alongside experience.
“Most major retailers know what needs to be done, and are in the process of doing it,” says Cook. “They’re rethinking food and beverage offerings, investing in place-making and creating more seamless online-to-in-store shopping experiences.”
This proactive approach can help retailers across the U.S. seize opportunity, whether in a suburban shopping center, or an old world high street.