Retail Research
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RESEARCH SPOTLIGHT ON RETAIL RESEARCH SPOTLIGHT ON RETAIL SPAIN 2015 SHOPPING CENTRES | OCCUPIER TRENDS | INVESTMENT MARKET 1 EXECUTIVE SUMMARY Q1 26% €519 2% transactions of the shopping centre 2015 forecast investment volume last 18 month of GDP have been prime High Street Yields Retail Confidence forecast to close 2015 at Indicator up 4.25 % 46% 16 % investment over last in March 2015 18 months has come from SOCIMIs/listed vehicles 2 SPOTLIGHT ON RETAIL RESEARCH MACROECONOMICS created in 2014, helped by the previous GRAPH 1 A stronger, more year’s labour market reforms. GDP ANNUAL GROWTH (%) 5,0 efficient economy Growing sectors include manufacturing, The Spanish economy has experienced notably the car industry, which has a dramatic turnaround since the financial seen a sharp rise in exports on the back crisis, notably in the last two years. While of strong international demand and a there remain various headwinds such weaker Euro. Tourism has also given the as a slowly recovering housing market, economy a much-needed boost, while high youth unemployment and general the construction, banking and financial 0,0 elections later in 2015, key economic services sectors are more stable indicators point towards a broadly based Low inflation/deflation is currently a major and sustained recovery over the next issue for much of Europe and negative 12-18 months. price falls are being seen in a number of GDP growth amounted to 0.9% in Q1, countries. In Spain the annual CPI fell -4,0 the seventh consecutive quarter of below zero in early 2014 and, following a short-lived recovery, inflation has been in 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 growth and the fastest quarterly rate of 2015F 2016F expansion since 2007. Action taken by negative territory since last summer. Source: INE, IMF the European Central Bank at the end However, the negative inflation rate is of last year – namely the reduction in mostly due to the sharp fall in oil prices its key interest rates to near or below and there is little evidence to suggest that zero and the launch of its quantitative shoppers are delaying purchases because level of growth in the manufacturing and easing programme in the Euro area – has goods are getting cheaper. Indeed, service sectors over the coming months. arguably boosted an economy which was inflation is expected to rise again by 1.2% In summary, economic growth is already in recovery mode. in 2016 once the effect of falling oil prices accelerating on the back of a more dissipates. While youth joblessness remains robust labour market, while easier access stubbornly high at over 50%, the overall Despite the continuing domestic issues to finance, improving confidence and rate of unemployment has peaked and and weakness in other parts of the Euro lower oil prices will provide an additional has edged down over the last 18 months area, the short to medium term outlook boost to corporate activity. Forecasts by to reach 23.8% in Q1. OECD forecasts for the Spanish economy is generally the OECD suggest that the economy will place unemployment just above 20% in positive. Forward-looking indicators grow by around 2.8% this year and 2.7% 2016. Indeed, some 434,000 jobs were such as the CPI indices point to a healthy in 2016. GRAPH 2 GRAPH 3 Unemployment (%) Inflation (CPI) TOTAL U25s ANNUAL CHANGE (%) 60 6 30 2 0 -2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: INE Source: INE 3 OCCUPIER TRENDS has their sub brands of H.E. by Mango, GRAPH 6 Retail sales growth Mango Kids and Violeta. Similarly, H&M Retail sales growth % (annual, volume) is developing a discount line to compete begins to take-off 10 with Lefties and has & Other Stories and The dominance of mega fashion groups Cos to diversify their offering into higher 5 Inditex, H&M and Mango, both on the end fashion. high street and in shopping centres, has 0 increased during the crisis years. The The success of discount retailing has led -5 rise of fast fashion has coincided with a new foreign brands to enter the market. Of reduction of independent retailers, and the note are Chinese low cost retailers such -10 recession pushed many foreign brands as Mulaya and Okeysi which began mainly -15 such as PC City, GameStop and Darty on secondary retail streets and have now 03 04 05 06 07 08 09 10 11 12 13 14 15 to leave the market. In their absence, we begun to expand and take shopping centre have overwhelmingly seen larger retailers, space as well; i.e opening of Okeysi. Source: INE who were perhaps more comfortable The improving employment picture has with the medium to long term outlook for boosted consumer confidence, which The major fashion brands that dominate Spain, re-entrench themselves in the best reached a post-crisis record high in March. the high street have all seen year on locations, in many cases consolidating In turn, this has translated into buoyant year growth in sales in 2014. Inditex saw locations into large flagship stores. retail sales growth, which reached 2.8% year on year growth of 5%, H&M posted In line with strengthening position of the (seasonally adjusted) in March this year. 12% growth, Mango’s growth in 2014 largest retailers in Spain, they are also Non-food sales have picked up, with was 15%, while Primark reached 29% , developing separately branded lines to sales of household-related products doing driven predominantly by strong expansion target key consumer demographics. Mango particularly well. during 2014. Inditex has reported a 28% y/y growth for their Q1 reporting period of February to April 2015. GRAPH 4 Given the positive outlook for Spanish Y/Y Sales Growth H&M INDITEX MANGO retail and recent improvements in 20 activity indicators such as retail sales 15 and confidence, we expect more international brands to enter the market 10 however the competition is stiff given 5 the well established position of existing 0 powerhouse brands. -5 As we begin to see new brands enter the -10 market, there is already a lack of space in the best locations with prime vacancy rates -15 in both shopping centres and high street -20 very low. New brands to the Spanish retail market include Violeta by Mango, Brooks Brothers, Michael Kors, Coach, Uniqlo, Supertrash, GRAPH 5 & Other Stories, Okeysi, Dealz, URBN, Number of Stores and Amount of Sales (€M) Missoni and Mulaya. INDITEX MANGO H&M PRIMARK 2014/2013 % CHANGE IN SALES VOLUME INDITEX + 5% 1,822 281 159 40 H&M + 12% €363.06 €726 €702 MANGO + 15% €3,706 PRIMARK + 29% CORTEFIEL + 5% 4 SPOTLIGHT ON RETAIL RESEARCH TECHNOLOGY IN RETAIL While the broader Spanish economy suffered greatly during the crisis, GRAPH 7 e-commerce sales have grown at an Quarterly e-commerce sales Spain average quarterly rate of 20% since 2009. According to the National Statistics 4,000 Institute for Spain, recent online purchases (3 months) in 2014 rose to 27.5% of the adult population and approximately 43% 3,000 of the adult population has made an online purchase in their life. The most commonly purchased products/services were holiday 2,000 accommodation and other travel services, sporting goods and clothing and event 1,000 tickets. The success of an online platform model has its limiting factors. 0 2009 2010 2011 2012 2013 2014 Greater online sales can create logistical difficulties, particularly with consumers’ Source: CNMC current expectations regarding delivery windows, which are rapidly decreasing, necessitating significant investment in bricks and mortar retail format. Multi- As technology changes, having a basic logistics infrastructure such as warehousing channel formats, such as Click & Collect, online platform is no longer sufficient. and transport. incorporating online sales with pick- The rise of alternate devices other than Online platforms are becomingly up and returns within physical stores, a standard computer has created the increasingly important to retailers active in are convenient for many consumers, necessity of having online retail platforms the Spanish market. That being said, Spain allow for cross selling and can ease compatible for use with smartphones, does lag many other European countries logistics complications. Many retailers tablets etc. In 2014 there were more and is considered a high potential market are incorporating in-store access internet users than computer users and for e-commerce. According to comScore, points to their online platforms, which internet users are increasingly using a Spain´s online penetration of retail allow consumers to order out of stock variety of devices in order to access the websites sat below that of most major product and familiarize themselves with internet. As consumers become more European countries, reaching 78.7% of the platform with the support of sales comfortable with online payments and internet users in 2013 which is well below personnel. Multi-channel retailing, when the payment process becomes easier, we done effectively, increases demand expect alternate device sales to increase the 90.9% in the UK. capture and creates a complimentary in tandem. The rise of online sales in retail is not relationship between physical stores and however the death knell of the traditional online platforms. GRAPH 8 Online penetration of retail websites Source: Comscore; Statista across European countries (Nov 2013) 100 86.6 87.3 89.1 90.1 90.5 90.9 92,4 82.6 84.1 82 82.2 82.3 78.7 79.3 80.4 70.8 50 0 Portugal Spain Norway Italy Denmark Turkey Switzerland Sweden Belgium Finland France Poland Ireland Netherlands UK Germany 5 HIGH STREET Prime retail rents were one of the only seen high vacancy during the crisis such Spotlight on Sol occupier sectors that resisted a mass fall as the Calle Bravo Murillo in Madrid.