Online Retailers Partially Replace Brick-and-Mortar Stores in the City

120,000 stores, predicts the German Retail Association (HDE), will have to close by the end of the pandemic. Commercial rents are falling, online providers are now venturing into prime locations, and physical shops and the online world are set to merge. A blog article by Dirk Mewis for the logistics financial service provider JITpay.

(Braunschweig) In light of rising infection rates and tightening lockdown measures, the consumer sentiment of German consumers has deteriorated again. For May, the market research company GfK now predicts a value of minus 8.8 points, which is 2.7 points lower than in April. “The third wave will ensure that the recovery of the domestic economy continues to be delayed,” explains GfK expert Rolf Bürkl. And “consumption will not support the economy this year – just like in 2020,” Bürkl adds. In contrast, in the years before the Corona crisis, private consumption expenditures made a significant contribution to the growth of the German economy.

The textile trade was particularly hard hit by the Corona lockdown. But furniture retailers and DIY stores also recorded a significant decline in sales. In contrast, online and mail-order trade benefited from the business closures, with e-commerce increasing by almost 30 percent in the first quarter.

One’s Joy – Another’s Sorrow/Rent Prices in Prime Locations Decrease

While many stores will have to close by the end of the pandemic, Felicity Pietsch, head of the Rostock leather goods manufacturer Gusti, has recently become the tenant of a 50 square meter shop on Rosenthaler Straße in Berlin, a prime city location. “In the past, we could never have afforded such a store,” Pietsch told the news magazine Spiegel. The rent was far too high, and the revenue and profit were far too low in comparison. Therefore, she and her husband Christian decided to sell their products almost exclusively online – in their own shop, on Zalando, About You, Amazon – and only occasionally try out physical stores. Now, however, in the midst of the pandemic, which will cost tens of thousands of retailers their existence, things are changing.

Not only Gusti is expanding. Other online providers are also taking advantage of the situation and are venturing into expensive addresses, the prime locations, those streets with the highest customer frequency. The falling commercial rents due to the closure of stores make this possible. 120,000 stores, predicts the German Retail Association (HDE), will close by the end of the pandemic. “For a long time, prime locations were a pure landlord market,” says Marco Atzberger from the EHI Retail Institute. “Since the 1970s, prices have risen, and owners could call any price they wanted.” City centers have thus become investment objects for international investors. Now rents are collapsing by up to 30 percent.

Physical Shops and Online World Merge

The bicycle retailer Rose Bikes from Bocholt also primarily conducts its business online; for a long time, there were only three shops. The retailer is now planning up to twelve new locations: Garmisch-Partenkirchen, Basel, Bern, Frankfurt, Hamburg, and a second store in Berlin – always in the center.

What many old retailers never quite managed, the new ones are now attempting: physical shops and the online world are set to merge. For multichannel retailers, flexible logistics and complete inventory visibility in both physical and online business are crucial.

Online Retailers Target New Customer Groups in the City

The eyewear start-up Mr. Spex is also benefiting from the emptying city centers. Mr. Spex wants to take over branches of the perfume chain Douglas. While the fragrance chain is radically shrinking its physical business and expanding its online offerings, the online optician Spex has planned its ‘expansion strategy’ primarily in the city. Since the beginning of last year, it has opened more than 20 stores in Germany, Austria, and Sweden. Sales manager Jens Peter Klatt observes “overdue, sometimes significant rent reductions.” For him, this means “attractive additional growth opportunities.”

The HDE is observing the development with interest. It is understandable that online retailers want to tap into new customer groups in the city instead of just investing their money in search engine optimization and online advertising, says Michael Reink, an expert in retail real estate. “But in a year, rents will be even lower.” He therefore advises everyone to wait a few months.

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