Traditional Stores Are Doomed
The structural revolution in the retail trade is moving forward at full power. Rising levels of vacancies of shop premises show this clearly. A look at the USA reveals how the retail trade in Switzerland could develop.
In 2017, the Swiss retail sector managed only minimal growth despite the improving economic environment. Turnover rose by a mere 0.1 percent. At the same time, the bankruptcy rate rose significantly through the middle of the year. Since the suspension of the minimum euro exchange rate, an above-average number of businesses declared bankruptcy: 380 in 2015, 400 in 2016. There have been signs of a slight deceleration since July 2017.
For the year 2018, Credit Suisse experts expect a mixed picture according to the recently published Real Estate Market Study. Pressure on retail prices could relent – provided that the Swiss franc depreciates further slightly. This is also reflected in the assessment of retailers themselves, whose sentiment is gradually improving. Nevertheless, turnover in the non-food sector will probably continue to stagnate in 2018.
Online Shops Instead of Malls
The stagnating turnover despite positive consumer sentiment in the non-food sector indicates the structural problems in the retail trade. Consumers are changing their purchasing behavior and shopping through new channels. As a result, more and more retail segments are being dragged into e-commerce. Although consumers in Switzerland are rather passive in this regard, a look at the USA reveals how the retail trade could develop.
American consumers are increasingly moving away from department store chains and are instead turning more and more to e-commerce. In the country with the largest amount of retail space per inhabitant, this is having a major impact on the retail trade. Malls are suffering the most. Last year, an estimated 9,000 stores closed, and 50 retail chains declared bankruptcy. According to Cushman & Wakefield, there could be up to 12,000 further closures this year.
The Mall Is Becoming an Entertainment Center
Even though the development in the USA cannot be transfered exactly to the Swiss market, the following findings seem to be relevant:
- Convenience stores are very trendy: The trend toward smaller households, the increasing rate of employment, and higher mobility are all favoring convenience stores. In addition, thanks to their fresh products, these stores are not under much threat from online shops.
- Department stores are doomed: The current generation of consumers gathers information and shops online. The role of the department store as a one-stop shop that satisfies almost every consumer need has now been taken by the internet.
- Shopping centers are changing: More than half of all malls have suffered a double-digit decline in turnover since 2010 – the height of the domestic retail trade. As a consequence, operators have been bringing increasing numbers of service providers into their malls. In addition, malls are likely to evolve more into urban entertainment centers.
- Shopping streets are flourishing, depending on their location: Brick-and-mortar stores will only fulfill secondary sales functions in the future. Instead, the best shopping streets will feature flagship stores which will primarily focus on advertising. For shopping streets in B- and C-grade locations, on the other hand, it will become increasingly difficult to find tenants.
Services Instead of Retailers in Vacant Shop Premises
The change in the retail sector is naturally having an impact on shop premises. In contrast to office space where vacancy levels have declined slightly, vacancies in retail spaces are continuing to rise. In the case of new shop premises, landlords are having difficulty finding tenants. Particularly in small and medium-sized centers and urban communities, there are many vacant shop premises.
The most difficult challenge is renting out shops in buildings with mixed uses. They are often found in less attractive locations, but would be important for nurturing a vibrant district. The Real Estate Market Study 2018 shows the current uses for such commercial spaces that were formerly advertised on rental portals. The study shows that retail traders moved into these spaces again in only just under one-fifth of the cases. The most significant group was service providers, who accounted for 26% of new rentals.