What’s behind Germany’s shrinking stores?

Article by Natalie Holmes
people shopping in Berlin
Image credit: Shutterstock

Germany’s stores are getting smaller as traditional fashion retailers rethink their use of space and emerging retail sub-sectors compete for inner city leases.

It’s not a question of cost-cutting or preparing for tougher times ahead; the German economy is sturdy, with GDP growing by around two percent in 2016. Likewise, spending is strong, with retail turnovers seeing a similar percentage increase over 2015.

However, JLL research shows that while the total number of leases remains the same, the area – as measured in square meters – has decreased by seven percent year-on-year. In other words, retail stores are getting smaller. Twenty-five percent of newly leased units are under 100 square meters, while the remaining 75 percent fall below the 500-square-meter mark.

“There are two main reasons for this trend,” explains Dirk Wichner, Head of Retail Leasing at JLL Germany. “First you have to look at who’s using the space. While clothing dominated for a long time, industries such as gastronomy, beauty, and jewelry are now on the rise. These sectors traditionally require less space.”

A new retail scene emerges

Across Germany there was an increase of 40 lettings in the restaurant and food sector in 2016, and an additional 84 in health and beauty, according to JLL research. Meanwhile, fashion fell by 32.

These figures reflect the macrotrends at play within the European retail market in recent years. The proliferation of third-party delivery services makes smaller units in the city core more feasible and attractive than ever for restaurants. And beauty businesses are increasingly opting for standalone stores to better represent their brand identity and offer an immersive in-store experience for consumers.

The second factor is linked to the repurposing of central urban locations. “As a rule, major fashion retail has always occupied several floors,” says Wichner. “But these rentals are virtually impossible in the current market environment. Inner cities are coveted locations, and upper floors are increasingly used for offices and apartments.”

As city centers become the preferred living locale for millennial workers, companies are responding by setting up in desirable areas in the quest to attract talent. Large retailers tend to occupy exactly the kind of space people now want to live and work in.

The impact of e-commerce

Plus, e-commerce means that retail floor space is less crucial than in the past. “Last year, goods worth about 50 billion euros were sent directly from warehouse to consumer in Germany,” says Wichner.

With many consumers now converted to the convenience of online shopping, Wichner believes demand for e-commerce will continue to shape the physical retail space. “It’s only logical that retail will retreat from upper floors and peripheral shopping streets, and instead concentrate on ground-floor stores and prime commercial locations,” he explains.

As Wichner points out, between the 1970s and 1990s, income rose significantly year-on-year, and with it, demand for goods of all kinds. At that time, bricks-and-mortar stores were the sole sales channel for most retailers.

“More and more commercial space had to be created to respond to this increased purchasing power. Shopping centers sprung up all over the place, floors were added and shopping streets extended,” he concludes. “Looking at retail trends over a longer period of time, the present shift can also be seen as a return to normality.”

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