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A growing number of retailers are joining hypermarkets in the trend towards downsizing - or 'rightsizing ' - of their floor space.

While ecommerce still only accounts for around 10% of total retail sales in the UK and just 1% in Spain and Greece, it is on the rise and clearly influencing shopping patterns. In response, retailers are not merely integrating their physical presence with an ecommerce strategy; they are also taking hard choices about the scale of their physical portfolio, according to Peter Gold, head of EMEA retail at CBRE.

Focus on prime locations
An ideal scale may no longer be 400 different stores, but a presence in the top 50 to 100 markets, he noted. ‘Beyond that, they need to work harder. Retailers will choose proven prime locations that are dominant in scale,’ he predicted.

While hypermarkets have been downsizing their stores for some time, the trend is also visible among leading anchor tenants like MediaMarkt. In some cases, these retailers are reducing their floor space by substantial amounts of 30-50%. In response, rental levels are plummeting by a similar percentage per m2, noted Shane Scott, partner at London-based private equity firm Resolution Property.

‘Electronics stores are moving towards floor spaces of 1,500 m2; we’re not seeing 4,000 m2 any longer. The same is happening with bookstores; before they used to have about 1,000 m2, now it’s about 400 m2. In the last 12 months, we’ve seen a lot more rightsizing.’

With insolvency becoming increasingly prevalent in the electronics and bookstore sectors, the trend will gather pace, he predicted.

But although re-gearing of leases for oversized retailers may eat into owners' budgets, the trend towards rightsizing also creates new opportunities for landlords, Scott said. 'We try to find retailers like fashion stores that generate extra footfall to replace them if they do downsize. And electronics retailers generally pay lower rents than fashion chains.’

Conduit for change
But while MediaMarkt is by no means the only player that is halving its floor space at certain locations, the French hypermarket chains such as Carrefour and Auchan are leading the charge, Scott added. ‘If it’s mainly about convenience, hypermarkets are not doing floor spaces of 14,000 m2 anymore.’

Downsizing is particularly visible in the French hypermarket segment where players such as Carrefour and Auchan are leading the way in making space available for click-and-collect points.

A similar trend is visible in Germany, Scott added, pointing to hypermarket chain Kaufland. ‘We’re seeing more downsizing with some hypermarkets moving from 10,000 m2 towards 2,000 m2. It you take away the non-food items like clothes and white goods, you are more likely to need 5,000-10,000 m2 rather than 15,000-20,000 m2. We’ve seen this is Germany in the last 12 months, in Poland the trend is just starting. But it is moving the same way.’

Big hypermarkets in excess of 25,000 m2 are unusual for the UK, but elsewhere in Europe hypermarket owners are reviewing their options, CBRE's Gold said.

‘Big standalone hypermarkets are more of a Continental European thing. We see the same discussion that’s going on in France in Spain, Italy and Eastern Europe. The common denominator is that the hypermarket is too big. The grocery side is still relevant, but for electrical goods and fashion other brands like Primark and H&M are more interesting. A big part of grocery is convenience, smaller stores, and catering to single-person households. They need to be in that world.’

Nevertheless, the discussion about downsizing is not straightforward, Gold pointed out. ‘It is often complicated by the fact that the retailer may own the land and/or building, or be located adjacent to a shopping centre. But,’ he added, ‘hypermarkets are definitely a conduit for a change in the industry.’

Judi Seebus
Editor in chief