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Der Immobilienbrief, February 11, 2011

Column: Factory Outlet Centers in Germany
What the Customer Wants but Fails to Get

Contributed by Bärbel Schomberg, Schomberg & Co. Real Estate Consulting GmbH

Raising the subject of shopping in Germany will always cause worlds to collide. A flurry of distinctions will differentiate between venue types and consumer types, product range depth and product range width, and motives that extend from pleasure shopping to the most rational consumer behaviour. All of these arguments have one decisive factor in common though: the pricing process ahead of the actual purchase transaction. Your choice of a shopping venue will automatically reveal what sort of price bracket, level of assistance and stock range you seem to expect – including what kind of parking accommodations.

The concept of concentrating retailers in a single building with unified planning and unified management is already represented by the classic shopping centre. Yet this retail type has been supplemented for some years by other elements such as retail parks or flagship stores. Perceived tendencies such as the demise of the department store, the success of the discount store, retail parks, and online shopping, too, dominate the discussion among the experts. There is one sub-element in the retail universe that continues to eke out a marginal existence in Germany, and that is the factory outlet centre. While in the neighbouring countries this sales variant not only developed but became an established component within the retail spectrum, Germany must be labelled as an underdeveloped country when it comes to factory outlet centres.

It may be true that Germany’s factory outlet centres – currently five, strictly speaking – are experiencing a veritable boom of customers and international investors, yet neither the authorities, nor the political decision makers, and least of all the local retailers have warmed to the idea of expanding this retail segment. The vote cast by footfall and parking lot occupancy tends to be qualified by urban and regional planning concerns. Municipalities, counties, and not least the German states have dug in behind this line of reasoning – which is admittedly the biggest obstacle for investors. Naturally, you will not find those municipalities that are actively seeking to develop outlet centres among the opponents. Rather, the neighbouring communities are the ones that most vehemently oppose it. The argument the latter tend to field is the feared drain in purchasing power.

But let us be honest: Anyone still maintaining in this year of 2011 that the development of a new retail destination will eliminate a previously white spot from the map has closed his or her eyes to the competitive reality, which is more than ever characterised by displacement.

It is therefore precisely a classic fear-inspired debate hinging on an argument that treats downtown and FOC retail structures as equivalents. In truth, the two hardly compare. What is more, the critics ignore one aspect altogether: So-called direct sales venues, such as e.g. factory sales, already represent an essential preliminary stage in the sales policy of manufacturers as it is. Prime examples that come to mind are the Fischhalle outlet of WMF in Geislingen, Pumakonzept in Herzogenaurach, or Hugo Boss in Metzingen. The latter city in Baden Württemberg has just about become a symbol for a prioritisation of this type of sales channel. Factory outlet centres as a property type are particularly appreciated due to their consumer-end pricing – even if the supply side is negligible in Europe.

Ever since the first factory outlet centre opened for business in the United Kingdom, this type of venue has been an established presence in the European retail landscape – subject to huge regional differences. While the first boom phase in the United Kingdom is evidently drawing to a close, Germany could yet be facing such a development. The fastest growing market for this property type is Italy, whereas in the Scandinavian countries factory outlet centres have hardly played any role at all so far. Yet the very fact is luring investors, and is doing so for two reasons: the hope to expand the investment spectrum in the retail segment, and the hope for structurally higher returns. Will these hopes be fulfilled though?

The differences seen among the European countries permit inferences regarding the national zoning practices or misgivings. While this type of retail venue is perceived as a sensible expansion of available shopping options in Italy, clichés and legal obstacles – as elaborated above – carry the day in Germany. What few factory outlet centres exist in this country are found in locations that resemble day-trip destinations more than an integrated site within the retail infrastructure.
Conclusion:  Germany does like its bargain shopping, but the underlying structures should – pretty please – not be too professional. Which is too bad, because this approach withholds from consumers the very thing they wish for to complement their shopping experience.


The PDF file for this article is available in German, too.