August 16, 2013

UK retailers redefine the hypermarket

photo: Tesco
Retail destination: A Harris+Hoole coffee shop forms part of Tesco Extra's revitalised gastronomic offer in Watford
Leading UK retailers are again in the news as they continue to downsize or reassign non-food space in their out-of-town hypermarkets.

Mirroring the problems of Wickes and B&Q in the DIY sector, Walmart subsidiary Asda has recently announced plans to use excess store space for communal purposes.

And on Monday Tesco officially unveiled a refurbished “Extra” outlet in Watford, near London, showcasing its new ideas on space usage.

Clearly the market leader is prepared to move beyond its core competence in food to meet space issues and to enhance its credentials as a retail destination.

But isn’t the whole exercise also clever PR spin in advance of eventual closures? And what relevance does it have for continental European retailers?

Recalibration or failure?


Tesco's revamped store includes a “Giraffe” family restaurant, an up-market “Harris+Hoole” coffee shop, and a bakery section partnered by "Euphorium" and "The Bakery Project" as well as a "City Kitchen deli" — all united for the first time under one roof.

A community space has also been made available for yoga, music and cookery classes etc. with a nail bar in the health & beauty department and a big stand-alone “F&F” clothing section.

In October, at Stockton-on-Tees, Tesco will give its first in-store space section to budget gym operator Xercise4Less.

So far, so creative. But Professor Joshua Bamfield, Director at the Centre for Retail Research, is not alone in suspecting that these experiments in space utilisation could be the prelude to future store closures:

“I would think such moves would be short/medium-term, and in the longer term they will sell some of the stores off — not possible at the moment because of the perception that the largest ones are uneconomic, and they do not wish to put the losses of the sale on their company accounts.”

One could also argue that top management also underestimated the major trends towards online and inner-city convenience shopping while indulging in a costly, ego-fuelled space race.

As non-food departments are essentially affected, it very much looks like they miscalculated here as well — either too much, or the wrong assortments, or badly executed, or all of these.

A little patronising?


The plans also give pause for thought in a cultural sense. Certainly, there is nothing wrong with giving back to the shoppers who have made you rich. But, seen historically, it seems patronising in Tesco and Asda to offer community space to the locals.

For many years their ugly, big box hypermarkets on green-field sites have sucked buying power from inner city High Streets. One butcher, greengrocer, ironmonger, newsagent and shopkeeper after another has been crushed by these steamrollers.

As a result, inner-town communities have been denuded of local infrastructure and socially impoverished. Now that it suits these powerful retail groups, they have decided to give a little back to the community. Let us hope the locals are truly grateful.

While we leave Asda and Tesco top brass to sort out the problem they have created for themselves, continental hypermarket retailers’ apparent lack of interest in new space usage remains intriguing. After all, Germany is far more overstored than the UK with probably around a third too much retail space chasing its 80m-odd consumers.

Gallic indifference


Our enquiries in France were not greeted with enthusiasm. “No such project on our side,” was the clear answer from Carrefour.

Interestingly, this comes after the French market leader invested hundreds of millions of Euros in revamping its western European hypermarkets under the “Planet” logo. The project did increase store revenues but not enough to make the investment viable (Tesco's fate?).

Admittedly, arch-rival Casino has transformed some of its “Géant” hypermarket space although this has essentially been into more profitable shopping centres.

Clearly the French, Europe’s hypermarket nation par excellence, believe that the format is still sufficiently strong to avoid having to close down or reassign space. Can this last?

German pundits fear the worst


In Germany most experts link the fate of big box stores to a tectonic shift within the market.

Professor Joachim Zentes, Director of the Institute for Retailing & International Marketing in Saarbrucken: "In only ten years between 20 and 25 per cent of the business will run via the internet. At the same time, this means that there will be overcapacity and closures in retail stores."

GfK non-food expert Oliver Schmitz says that there is a growing number of people who spend more than half of their non-food budget online. This includes categories such as sports equipment, household goods, gardening lines, stationery, office equipment, mattresses etc. which have hitherto always been the classic domain of bricks & mortar retailers.

The Nuremberg-based consumer research group has calculated that every second euro lost in business by German hypermarkets in 2011 and 2012 went to an online retailer.

Another trade insider estimates that German hypermarket operators with stores of over 5,000m² have had to reduce their non-food sales areas by around 5 per cent over the last two years.

"The internet isn't the problem, hypermarkets themselves are the problem," says another. "Discounters, specialist retailers and other category killers, including DIY and furniture stores have also stolen business from those assortments that big box retailers have failed to nurture."

Retail philosopher and CEO of Zurich-based Gottlieb Duttweiler Institute, David Bosshart, sees traditional hypermarkets at the end of their store life cycle. "Hypermarkets have become huge destroyers of customer timer. Put polemically, they could soon be only for customers with lots of time, but no money."

All the pundits seem, however, to agree that, if hypermarkets are to survive, they must have an attractive non-food offer to differentiate themselves from discount stores and supermarkets.

They must also adjust their assortments locally on a site-by-site basis, which is the fine art for a multiple. "It also requires a lot of money," adds one commentator.

German retailers remain sceptical


German hypermarket operators themselves, however, remain sceptical regarding the new plans of UK big box retailers.

Secretive star performer Kaufland provided the usual: “We don’t make statements on strategies and concepts on principle.” Whereas local hero Globus was anything but evasive: “We are concerned with developing more store space and are not considering reassigning it in our hypermarkets.”

Despite its increasing interest in gastronomy, the issue is hardly important for Rewe: “Tesco’s and Asda’s plans regarding excess store space are not relevant for the few ‘toom’ hypermarkets we have. We are not planning anything similar.”

Metro Group subsidiary “real,-” has already reduced some shop space or has replaced it by specialist departments (beds, baby, bicycle service) on an experimental site-by-site basis. Where possible, it prefers its sister company, electronic entertainment specialist MediaSaturn as a tenant.

Overall, however, the retail giant would seem to be the most open to the British ideas, as confirmed by a company spokeswoman:

"In the event of any excess store space, we always try to use it for retailing purposes as a matter of principle. But at certain specific sites, where this could be difficult due to building reasons (e.g. when we have a top floor), we also regularly examine other commercial uses. Theoretically this could also include a fitness studio.”

Some German store managers were prepared to talk to us “off the record”, but none seemed favourable: “Fitness centres in hypermarkets?! Well, the space is there, but I don’t know one single person who has ever tried it,” said one.

“Poppycock! Either a store works or not, and, if it doesn’t, one simply shuts it,” said another.

There is even one anecdote still doing the rounds in the trade: Department store operator Karstadt is said to have once considered reutilising space on its top floor, but the company forgot that the store closed at 8 p.m. As the outlet didn’t have a separate entrance, they had to bury the project quickly, or so the story runs.

Reasons for reticence


Are German hypermarket retailers really as uninterested in Tesco’s and Asda’s new space usage strategies as they claim? Michael Gerling, CEO of EHI Retail Institute, gives one possible reason for their reticence: “Retailers prefer to think about expansion, and no one wants to think about reducing space.”

But, given falling population levels, smaller households and increasing online competition, Gerling believes that local retailers might do well to consider reducing or at least reassigning shop space. “However, I wouldn’t have thought that out-of-town sites would provide ideal locations for fitness clubs, and other uses ought to be looked for as an alternative.”

Josef Schmidt, a former top manager at hypermarket operator Globus and owner of trade consultancy Solution Management, agrees with Gerling:

“No retailer here in Germany wants to admit that they have a problem because at the end of the day we are talking about declining sales densities in the store. Before anyone closes space, they will first try to develop existing assortments or add relevant specialist ones.”

That said, Schmidt also feels that it would be sensible to “look over the garden fence” at how UK retailers are adapting their assortments and testing new ideas. In his view, this could include “subject no. 1” which he sees as health.

“At the end of the day, every big box retailer must ask himself: How can I get customers to make a long trip to my store while passing an Edeka and Rewe supermarket as well as a discounter on the way?”

At least Tesco customers will soon be able to burn off excess calories when they get there. And, now that sustainability has become so trendy among UK retailers, presumably Tesco will utilise the energy generated on treadmills etc. for lighting the store?

 
Related article in German: By Mike Dawson in Lebensmittel Zeitung, no. 34, 23.08.2013

 

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Comments for this article are closed.

  1. Created 19 August, 2013 16:39 | Permanent link

    Hi Mike,

    I agree with the sceptical undertone of your article and of most of the people you interviewed.

    I have visited this Tesco on Google, and so far I am completely unimpressed. It may be that a real-life visit will prove me wrong, but the fitness club that is rumoured to enter there as well is the most sure sign of too-much-space-problems. As we all know, fitness clubs are the archetypal disguise for unrentable retail space in problematic shopping malls and shopping concentrations around the world.

    Apart from what Mr. or Mrs. Consumer feel about it (takes too much time, hate parking, risk of traffic jams on the way there or back, not really the cheap solution, I buy too much etc.), the real problem is within the company.

    Let's face it, hypermarkets in countries with well-developed retail infrastructures are difficult, multi-headed beasts to run, with their inbred food/nonfood culture conflicts. They will only survive in the hands of the most capable families, who can breathe their very special culture into all the potential conflict areas. Kaufland and Globus are the exception, not the rule.

    As you know, I do not see the trend reversing... Hans

  2. Created 22 August, 2013 15:21 | Permanent link

    Dear Mr. Dawson,

    The English take the initiative, the French say "non", the Germans are not quite sure what they want! Wasn't that how it was when the Brits wanted to join the Common Market?!

    Getting back to Big Box stores, there is one problem that hypermarkets have in common with food discounters: Companies neglect their "communicative" duties to their customers. Shopping is communication, and many retailers have forgotten this.

    Real,-, Kaufland, Aldi & Co. stake their all on price and efficiency, but the internet may one day be able to beat them at their own game one.

    Why, to give an example from the recent past, were no staff hired to man the empty bottle return points in German stores? Time for a chat? Not at Lidl! Just lots of automated machines. Does this form of mechanised retailing have a future? Probably real,- would get rid of the staff at the tills if it could.

    I dare to maintain that Big Box stores will, however, continue to be even when real,- and Kaufland have one day ceased to exist. Specialist store agglomerations, such as we have here in Germany on Wiesbaden's Äppelallee, are seasoned retail destinations and have almost become semi-cities. One doesn't forget this sort of thing so quickly.

    Something else is happening at large stores. One will try to find more communicative forms of retailing there and perhaps also introduce culture, living space and leisure. Here, the pre-checkout zone (at the hypermarket) with small shops on a human scale and the pre-checkout bakery with customer seating (at the discounter) are particularly important. The pre-checkout bakers are the coffee houses of the 21st century.

    Finally, your readers might like to have a look at an article in our B2B real estate publication "Immobilien Zeitung":
    http://www.immobilien-zeitung.de/122556/einkaufen-ohne-zu-reden-wollen

    Kind regards

    Christoph v. Schwanenflug

  3. Created 23 August, 2013 11:42 | Permanent link

    Dear Mike,

    As a child growing up in Germany, every larger non-High Street supermarket I knew had a bakery and café, a dry-cleaner's, cobbler's/locksmith's, pharmacy, photography point and/or hairdresser's, or similar facilities, at the entrance. Equally, on holiday in France, every Carrefour or Intermarché we went to offered something very similar.

    The British are not ahead of the game at all, they are only catching up, and, as yet, are not doing particularly well.

    British supermarkets have another issue that is often overlooked, but which is a real bugbear for consumers. Their "BOGOF" offers and other "deals" mean that customers often spend more than they had originally planned and that they end up with more perishable items than they need.

    This is why the likes of Aldi and Lidl are doing so well: the unit price is the unit price, whether you need to buy one bag of apples or three -- and consumers buy what they want and need and come back for more later.

    Best regards,
    Angelika Rivero

  4. Created 3 September, 2013 12:18 | Permanent link

    Hi Mike,

    My compliments regarding your blog on Tesco Watford. It also struck me as an attempt to reinvent the hypermarket, just like Carrefour tried with Planet.

    In France, several Big Boxes also have an option to allocate store space to online fulfillment centers/storage capacity and online order deliveries (via 'drives' as the French call them).

    The only retailer who does not suffer from too large spaces is IKEA. Here in the Netherlands, an IKEA store in Utrecht wanted to expand, but didn't have the land. So they clinched a deal with a neighbouring sports accomodation.

    The result: a larger store with two soccer fields on top! That's creative, isn't it? The local authorities supported the idea, provided that the nets surrounding the soccer fields were not too high...

    Regarding hypers: I expect Ahold to sell its Czech & Slovak operation in the near future. They clearly have trouble with that format and management doesn't believe in hypers.

    Kind regards

    Pascal Kuipers
    Alsano Communications

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