With U.S. retailers such as Abercrombie & Fitch Co. and Gap Inc. pushing into Europe, analysts are debating a key question: Has there been enough recent development to satisfy this new demand for space?
The weak U.S. economy and worries about jobs have consumers spending less and are causing some of the biggest U.S. retailers to look abroad for growth.
According to new research by property consultants CB Richard Ellis, 1.9 million square meters (20.5 million square feet) of new shopping-center space was built in Europe in 2010, down 36% from the previous year, even after development fell 30% in 2009. Some analysts believe there is still enough supply to satisfy demand.
But others aren’t so sure. "A shortage of new shopping centers being built in Europe restricted the expansion plans of retailers in 2010," CBRE said in a statement.
U.S. retailers expanding abroad include some of the biggest names in the business. Banana Republic, for example, is expected to open its first French store this year. In 2010, Apple opened its largest flagship store in the world in London’s Covent Garden. Fashion retailers Tommy Hilfiger and Michael Kors have built flagship stores in Paris.
Other retailers on the move include Gap, which is opening stores in Europe and announced at the end of June that it would move into Africa with plans to open a Gap store in Egypt and Gap and Banana Republic stores in Morocco. Gap’s moves mark a comeback after its unsuccessful attempts to establish a foothold in Europe in the 1990s; it ultimately closed all of its stores in Germany.
Meanwhile, Abercrombie & Fitch is going global with its namesake brand and its mass-market Hollister brand. In May, the fashion retailer charmed Parisians when it opened the doors of its first new flagship store on the posh Champs-Elysees, with more than 100 topless muscular male models adorning the entrance. The Paris store was the first of a series of new European openings planned over the next two years.
Abercrombie & Fitch is planning to open stores this year in Madrid, Düsseldorf and Brussels. Further openings are planned next year. Plans for Hollister are even more aggressive. The company opened 20 Hollister stores last year and intends to open an additional 40 this year, part of a plan to have as many as 185 stores in Europe.
The impact was felt strongly in the first quarter of this year, when international sales growth outpaced U.S. sales and drove an increase in Abercrombie & Fitch profits.
Even if American retailers find the space they want in Europe, it is no guarantee of success. In the 1990s, U.S. retailers also tried to set up shop in Europe, but some found it difficult to deal with complicated local regulation and high rents. Also, at the time, Europe had fallen out of love with American fashion.
Today, rents are still high, and regulation hasn’t changed much. But there are signs that American duds may be back in fashion.
The challenge has been to find locations. Abercrombie & Fitch originally intended to open 30 Hollister stores in Europe last year, but a spokesman said the company had to cut that goal by a third for administrative and organizational reasons. Abercrombie & Fitch put together a three-person European real-estate team last year to help with the search for space.
Analysts say the problem isn’t just organization and suggest that U.S. retailers are running into a shortage of top-line retail space in Europe. "Hollister had difficulty finding locations. It appears that it is harder to find quality real estate in Europe," says Randy Konik, retail analyst with securities research firm Jeffries & Co.
The outlook is better in some countries than others. According to CBRE, the development pipeline is still "considerably smaller" than in 2007 and 2008 —the most recent peak in shopping-center development. But construction starts are rising in markets such as Turkey, Russia, and Poland. There are 146 shopping centers under construction in Europe today, says CBRE, and the highest level of activity is in Europe’s emerging markets.
"The shopping center development market in Turkey has sprung back to life," Neville Moss, CBRE’s head of retail research in Europe, the Middle East and Africa, said in a statement.
Many of the shopping centers that are under construction now are projects that were put on hold during the recession. Last July, Land Securities PLC got the ball rolling again when it began construction of the Trinity Leeds shopping center, the first major shopping center development in the U.K. since the recession. A Land Securities spokesman said the company was willing to go ahead with the project because 40% of the space was leased in advance of construction. With the center scheduled to open in two years, about 60% of the retail space has now been leased.
Another thing in Europe’s favor is that American retailers are finding it easier to experiment and try new strategies in new markets than to revamp worn models at home.
"New concepts don’t work in the U.S.," says Mr. Konik, the Jeffries analyst. "So in an effort to continue growing U.S. retailers are accelerating expansion in Europe."
Source : Wall Street Journal