The marketplace has been central to European life since the days of Ancient Greece — not merely as a place to buy things, but also as a place for civic matters. (In fact, the ancient Greek verbs for shopping and for public speaking even share the same root.) Today Europe’s 9,200-plus shopping centers remain at the heart of the Continent’s socioeconomic life — generating jobs, taxes and community gathering space on a scale few other industries or institutions can match, according to an ICSC report released in August, titled The Socio-Economic Contribution of European Shopping Centres.
Even now, some 20 years after the advent of the World Wide Web,
as it was then called, roughly 90 percent of Europe’s retail sales still occur in physical stores. Last year some €524.7 billion (about $580 billion) of these sales took place in shopping centers. Further, sales in shopping centers generated roughly €109.6 billion in value-added taxes last year, while shopping centers provided some 4.2 million jobs across Europe, roughly one out of a dozen jobs. Household consumption now makes up 55 percent of Europe’s gross domestic product.
“As this report demonstrates, the retail industry is a central pillar of Europe’s economy, providing jobs, urban regeneration and centers for our communities,” said Mike Morrissey, ICSC’s executive vice president for global operations. “The retail and shopping center industry has provided critical economic support during some very tough times in recent years and is playing an equally critical role in Europe’s recovery and future prosperity. The importance of this industry to Europe’s economic well-being cannot be overemphasized.”
And the Internet is not going to change that, executives say. “Physical shopping is all about the experience, and this is something that is almost impossible to replicate online,” said David Atkins, CEO of Hammerson. “Of course, retailers need to invest in slick multichannel capabilities … but I believe that the store will remain central to their success in the future.”
Retail real estate makes up just over a quarter of Europe’s total commercial space; shopping center gross leasable area totaled some 190 million square meters (about 2 billion square feet) as of last year. Shopping centers are common in urban, suburban and rural areas now. Quite apart from their economic impact, they also perform a critical social role. “Centers provide an important, socially democratic ‘third space’ between work and home, where individuals can feel a sense of belonging within a central marketplace offering goods and services,” according to the report.
But it is the economic importance of shopping centers that executives say should not be underestimated. At the local level, the difference retail makes is very clear. In La Spezia, Italy, for example, Le Terrazze Center has generated 700 jobs since Sonae Sierra opened that 38,455-square-meter shopping center in 2012. And next year, when the 170,000-square-meter Westfield Milan opens, it will bring as many as 17,000 new jobs.
All that shopping by European Union consumers has also helped create some of the most dynamic retail companies in the world. In Deloitte’s 2015 ranking of the world’s largest retailers, 21 of the top 50 and 90 of the top 250 are based in Europe. Thirty-six percent of the names on the list of the world’s largest -retailers are European, and they bring home 38.9 percent of the top 250’s total retail revenue. European retailers are also among the world’s most globalized industries: 38.6 percent of their revenues come from operations outside their home territory, versus 15.4 percent in the US. According to Deloitte, the typical major European company operates across 16.2 countries, nearly double the figure for their U.S. counterparts, which is 8.5 countries.
Despite these numbers, awareness of the industry’s importance fluctuates with the economic cycle. Overall, the attention given to retail, like all business sectors, tends to be somewhat cyclical, according to Iffat Memon, European public-affairs manager for ICSC in London. Since the financial crisis, however, legislators have gotten more interested in retail because it is still such a labor-intensive sector, Memon says. “Lawmakers at the EU level recognize the contribution that retail trade brings to the EU economy,” she said, pointing to the EU’s 2013 retail action plan, which was intended to make sure policymakers considered the impact any policy decisions might have on retail.
The next key test of the EU’s commitment will be the release of a single market strategy for goods and services, which Memon says will lend some clarity to the European Commission’s understanding of the industry’s needs. The strategy will identify regulatory barriers that hinder cross-border retail sales and then recommend ways to mitigate that.
A decade ago, the growth of e-commerce led some to question whether physical retail would maintain the same level of importance. But some executives now predict that the industry’s evolution will actually create new opportunities for retailers to get closer to their customers. “In the coming years, online sales are likely to grow further,” said Heino Vink, COO of Amsterdam-based Multi Corp. “However, in many cases, an online purchase is a step in a buying process which is partly online and partly offline. But the position of the store will change from a place where a consumer goes to buy products to a place for services, experiences and an opportunity to buy.”
Figuring out a new operating model for this new order may take some work, especially for traditional retail sales. “Most shopping mall finances rely on some payment based on sales by retail tenants,” said Richard Cuthbertson, a senior research fellow and research director at the Oxford Institute of Retail Management at Saïd Business School, University of Oxford. “What if stores act more like showrooms and customers pay later online? How then do you assess the value of the store to the mall, and the mall to the store?”
Some express confidence that the industry will succeed in adjusting to this new era. Alexander Otto, chief executive of ECE Projektmanagement and chairman of ICSC’s European Advisory Board, is among them. The importance of shopping centers “will continue into the future,” Otto said, “as omni-channel retailing brings new opportunities for consumers, retailers, and investors alike.”
