Copyright: David Lawson – Plaza Magazine – May 2003
So developments devoted to home interiors should be no surprise. You can’t turn on a TV or open a glossy magazine nowadays without being badgered into painting, primping, knocking down walls and replacing every stick of furniture. There are DIY giants, of course. Castorama, the international OBI franchise and Britain’s Kingfisher have spread like wildfire to serve a European market estimated at more than Euro 130bn. In the UK alone, B&Q took £100m in sales from 8m customers over the Easter holiday, equivalent to its annual turnover a decade ago.
That is partly because of takeovers and concentration into fewer large operators. Yet for all its dominance, B&Q makes up less than 14% of UK turnover. A multitude of specialists sell everything from kitchen and bathrooms to furniture, curtains and floorcoverings. While retail centres have grown around warehouse-sized DIY and furniture outlets, the bulk of smaller outlets remain scattered around shopping streets.
‘We get quite angry about it,’ says one international kitchen retailer. ‘We are promoting high-quality, luxury goods and don’t want to be stuck in a back street or some box on the edge of town. But we can’t afford to compete with the top rents paid by fashion boutiques in prime pitches and malls.’
Bernhard Garbe, a Hamburg-based developer, picked up this message more than five years ago when local retailer Alexander Raab asked him for a new kind of centre which grouped high-quality brands in an environment which matched the goods they were selling. He obliged by renovating an historic building in the harbour and labelling it Stilwerk [style works], a brand now emerging across Germany and set to expand into the rest of Europe.
At around the same time MAB was getting similar messages from retailers in Holland squeezed out of city centres into fringe developments tagged as Meubles Boulevardes – a sexy French label for strips of boring boxes. ‘They were not exactly the kind of place where you can seduce people to spend,’ says MAB chief operating officer Karin Laglas.
So when Rotterdam Council asked for plans to extend the massive Alexandrium Centre, MAB won the contest with a home interiors theme. But at 62,000 sq metres, it was on a different scale to Stilwerk’s 13,000 sq metres.
No matter what the size, the concept seems guaranteed for growth. Retail analyst Verdict has pointed out that people no longer buy home products because they need to but because they want to. ‘Fashion is the key,’ it says. Just like clothes, buyers will pay extra for the right brand. As standards of living rise – and TV style programmes proliferate - they become more hungry for quality and a style that reflects their new status – or aspirations.
Just as factory outlets have created clusters of quality clothing brands, these new centres group kitchen, flooring and furnishing boutiques such as Bang & Oluffsen, B&B, Alessi, Neff, Bosch and Ligne Rose. The difference is that they don’t offer last year’s products at a big discount. They trade on the fact that a customer can see everything they need for a fashionable home under one roof – a 21st century version of the 19th century department store.
Stilwerk takes this one step further, insisting that no two retailers may offer the same product. ‘It is co-operation rather than competition,’ says the founder’s son, Alex Garbe. ‘Retailers like this because it draws in customers who know they will be able to see a complete range of products rather than duplication.’
So why are so few developers jumping on the bandwagon? One problem is finding the right sites. Stilwerk depends on locations close to prime shopping, which can be hard to wrest from conventional retailing. MAB’s approach demands huge peripheral locations that rarely get planning approval.
Anyone else coming on the scene needs approval from the specialist retailers who are crucial to such schemes. That’s why Garbe has such a hold in Germany, says Frank Emmerich, Cushman & Wakefield Healey & Baker head of retail in Düsseldorf. ‘They have invented something totally new. Why should tenants go to someone else?’
But Laglas says other developers are beginning to look at the idea in the Netherlands, and the race is on to create the two or three more giants the country can handle. So it is looking further afield to countries where rivals have been slow to catch on. A 60,000 sq metre centre is under way near Paris and sites are being looked at in large provincial. towns such as Lille, Lyon and Avignon.
Garbe has built enormous momentum at home, spreading the Stilwerk brand to Berlin and Düsseldorf. Stuttgart, Frankfurt and Munich are next on the list. But that has not stopped the firm looking further afield.
The UK is a prime target. MAB has the infrastructure through involvement in several conventional town centre developments and veteran developer Martin Landau as UK chairman. Garbe has a foothold through its first London office development. There would be a certain irony bringing a new retailing concept across the Channel. For decades, the flow has been in the other direction. Covered malls, retail parks and factory outlets may have been conceived in America but came to Europe via the UK.
This change in leadership is due at least in part to lack of flair and a failure of imagination. Not this time by developers, however, but by retailers. They were handed a golden opportunity as house values have soared in the last five years, leading to a consumer boom as owners extracted billions of pounds worth of equity. Meanwhile, existing owners went into a frenzy of renovation – not to add value as in years gone by but to polish their most precious possession. A Halifax Bank of Scotland survey last month shows 35% of borrowers aimed to improve the look of their home.
Turnover has boomed for the DIY giants but furnishing and floor covering retailers lagged, according to Verdict. Spending on furniture and floorcoverings will pick up but only from 3.9% per year in 1997-2002 to 4.2% in 2002-07. It condemns operators for failing to make shopping easier and more stimulating rather than relying on price wars;‘They must ensure the shopping experience is truly positive and inspiring. As spending on the home increasingly becomes the new channel for self-expression, retailers should capitalise on the fact that furniture and floorcoverings are now not just functional, but are increasingly about fashion, style and design.’
They lack the courage of many Continental and specialist operators, relying on routine replacement rather than tapping the rise in aspirations by creating differentiated brands. As the housing market cools retailers may be left wondering whether their long-awaited ‘golden age’ has come and gone, says Verdict. The prize is well worth the effort. The homeware market will rise from £57bn to £74.4bn by 2007 – well outpacing the overall retail sector.
John Milligan has been linked with Stilwerk’s aim to find sites of between 20,000-35,000 sq metres in the south-east, although he will not be short of other suitors. It seems an ideal marriage as he left a plum post at Jones Lang LaSalle to set up Retail Resorts International with the specific aim of giving tired shopping centres an excitement transplant. One partner, Joseph Kaempfer, already has experience of new retailing concepts by launching factory outlets in Europe via McArthurGlen. Another, Richardson Developments, broke moulds with centres like Merry Hill.
It will not be easy to conjure up sites but Laglas says planning restrictions could be overcome by moving into the ‘urban flesh’. Stilwerk’s inner-city approach could suite fading department stores left behind by changes of prime pitch, according to Milligan’s research director Adrienne Jones. But she points out that style-based schemes need addresses with the right ‘feel’ – something like King’s Road in Chelsea. Overcoming these barriers could see around half a dozen UK centres emerging. This will depend, however, on leap of faith not just by developers but planners and retailers.
Stilwerk creates retail centres themed on high-quality home products such as furniture, fabrics, floor coverings, bath and kitchen interiors, hi-fi and lighting. With the success of the first centre, opened in Hamburg in 1996, subsequent developments in Berlin and Dusseldorf were practically guaranteed pre-lets from top brand names hungry for high-quality surroundings. Stuttgart is next on the list with Frankfurt and Munich to follow in plans to cover every major German town. But the universal appeal of style and the importance of international brands means Stilwerk could be transplanted into almost any European centre, driven by demand from these specialist retailers.
Developer Garbe should have a relatively easy ride from planners as the concept is heavily geared to regeneration and high-quality architecture. Alex Garbe, the son of the founder, points out that they were invited in by local authorities to carry out the Stuttgart development due to open in 2005.
Financial returns are hard to pin down, as Garbe is a private company, but it has won the confidence of one important heavyweight, DEGI, which bought the Berlin and Dusseldorf centres. Rents are unlikely to be higher than the Euro35-40 seen in most German centres, says Frank Emmerich, head of retail in Dusseldorf for Cushman & Wakefield Healey & Baker. But these are geared to turnover, and vacancy rates are almost non-existent becauser of demand by top brands
The template varies from city to city: Hamburg was a converted historic building, Berlin a glass palace on the former Dresdner Bank headquarters site, Stuttgart stitches together old buildings with new glass. But the pattern is always similar: multi-storey levels overlooking an atrium which doubles up for exhibitions and cultural events, reinforcing the style theme. Unlike conventional centres, there is no large anchor.
The centres are more like high-rise streets, with similar products grouped in standard units. One unique aspect is that they are not allowed to compete on the same products. The aim is to provide a complete ‘browsing’ experience across a complete range. Each centre is given a local flavour by inviting in a few brands from the region rather than allowing the internationals to hog all the space.
Hamburg Grosse Elbstrasse 68
Opened 1996 – 13,000 sq metres [11,000 sq metres retail]
Special events foyer and forum
Owner: BGB Gesellschaft Malzerei Naefeke
Berlin –Kantsrasse 17
Opened 1999 – 40,000 sq metres [20,000 sq metres retail]
Special events mall and forum
Underground parking for 162
Owner: DEGI Deutsche Gesellschaft fuer Immobillienfonds mbH
Dusseldorf – Gruenstrasse 15
Opened 2000 – 25,000 sq metres [17,500 sq metres retail]
Special events foyer and forum
Underground parking for 470
Owner: DEGI Deutsche Gesellschaft fuer Immobillienfonds mbH
Stuttgart - Bolzstrasse
Planned opening 2005 – 50,000 sq metres [15,000 sq metres each of retail/showroom and mall/ food court]
Underground parking for 400
Owner Garbe Group and Stilwerk AG
Main Stilwerk Brands
Artemide, Alessi, B + B Italia, Bang & Olufsen, Cappellini, Cassina, Cor, Interlübke, Ligne Roset, Poggenpohl, SieMatic, Thonet, Tobias Grau, vitra, Wilkhahn
MAB, one of Europe’s biggest developers, came to the idea of themed interior centres almost by accident. It was asked to pitch for the third stage of the giant Alexandrium Centre in Rotterdam and came up with the idea after consulting retailers.
Alexandrium lll has no anchor and most units are a standard 2,000 sq metres, as the attraction lies in the theme rather than a big name. Products like kitchen goods are grouped, although some variations take place to alter mood and pace for shoppers.
The financial success is difficult to judge because units rarely come on the market but one re-let last year showed 27% growth since the centre opened in 1996. This compares with the general retail index increase of 16%.
. Success in Rotterdam has led MAB to plan a stand-alone centre called Domus at Rosny-sous-Bois outside Paris as the first step to exporting the idea across Europe. The Dutch development has proved attractive to investors and been sold off in various parts. Bouwfonds, the big financial group, was convinced enough to take a half-share in the French development.
But Domus shows how the template will need to be tweaked to meet local markets. It faced huge planning problems from local authorities frightened about the impact on existing centres and had to prove to central government it was proposing something innovative to win approval. This involved an anchor, a 7,000 sq metre garden centre operated by Truffault. A white goods retailer, Boulange, has also signed up for 11,000 sq metres.
MAB is now looking at other major French towns, confident that it can use similar arguments to win approval. In fact MAB could use a similar approach at home in the Netherlands as gardening and interior furniture move closer.
While the ventures are larger than Stilwerk and aim more at the mass market, chief operating officer Karin Laglas, does not see a gulf, pointing out there is no reason why the two should not work in partnership on further European schemes.
Alexandrium III, Rotterdam, The Netherlands
62,000 sq metres
Parking for 1,550
Investment Value: 53.09 million Euro
Average rents: 80-100 Euro per sq metre
Owner: VastNed, Interpolis and various retailers
Domus, Rosny-sous-Bois, France
72,050 sq metres [60,000 sq metres retail]
Opening planned 2005
Parking for 2,500
Investment Value: 152 million Euro
Average rents: 223 Euro per sq metre
Owner: MAB/Bouwfonds Property Finance