When asked how Czech brick-and-mortar retail is doing, experts did not have very positive answers in the times of covid and just after it, and one apocalyptic scenario alternated with another. However, the proverbial nail in the coffin for brick-and-mortar retail stores was ultimately neither a strong energy crisis nor a sharp increase in inflation.
“Brick-and-mortar retail has proven to be a very robust industry, and the winners are those traditional brick-and-mortar brands that have integrated online into their business models and provide customers with comfort through fine-tuned strategies that do not differentiate between brick and mortar and online, but offer convenience, speed, reliability and inspiration,” says Jan Janáček, head of the retail sector and retail leasing team at CBRE.
The new standard is said to be slightly lower attendance at brick-and-mortar stores, which is the result of changing customers’ lifestyles. On the contrary, sales are already above the pre-Covid level, and this year the main driver is not extreme inflation, but natural growth.
Electronics retailer Okay plans to close roughly a third of its stores this year. “They have not successfully managed the transformation to multi-channel sales or cost management at a time when more and more sales are moving to the Internet, and brick-and-mortar stores have to work with margins in stores in a completely different way,” comments Tomáš Prouza, president of the Trade and Tourism Association of the Czech Republic (SOCR Czech Republic).
Recently, the electronics store Datart also merged with Electroworld, and the shock of the end of the electronics retailer CZC, which was absorbed by the Polish Allegro, is still resonating among the Czechs. The footwear retailer Foot Locker is also closing a large number of brick-and-mortar branches in Europe.
But there are many more examples of closed brick-and-mortar stores. According to Jan Kotrbáček, partner and head of the retail space leasing team for Central and Eastern Europe at Cushman & Wakefield, this applies to 780 stores since the beginning of this year. In contrast, there are only 637 newly opened.
Although this may not seem like a positive development, the opposite is said to be true and the Czech retail market is healthy and in very good shape.
“The number of closed shops includes factors such as the closure of the entire shopping center for reconstruction (this was the case this year, for example, in the Kotva department store in Prague, where 66 tenants closed their shops due to reconstruction) and also the time factor, when the number of closed shops is temporarily higher than a new tenant will be able to move into the unit,” explains Jan Kotrbáček, adding that behind every closed unit there is already a new tenant or negotiations with new tenants.
Most of the closures concern clothing and footwear stores. “A number of established brands suffer from the fact that the Czech customer is used to shopping online, either directly or through various integrators of fashion brands, and brick-and-mortar stores cannot support themselves in their original size and density,” explains Tomáš Prouza, another of the motives.
According to him, clothing and footwear brands for young people in particular suffer from the fact that they mainly sell branded goods that can be bought in different ways and often at a better price, for example on the German Amazon. So even the size of the strong German neighbor and the possibility to buy on the single European market are rewriting the map of brick-and-mortar stores with consumer goods.
The other side of the spectrum is also lively this year. This year, more than one important brand has opened a brick-and-mortar store in the Czech Republic or is still planning to do so.
“For example, Sephora and Sketchers or Nike and HalfPrice on Wenceslas Square have decided to open their flagship stores in Prague’s Na Příkopě Street. The Czech Republic is also attractive for gastro concepts, such as Popeyes or Five Guys, and for the further expansion of companies that have been present for a long time, such as McDonald’s, Starbucks and the like,” outlines Kotrbáček.
According to him, the most important news this year is the re-opening of the store of the fashion brand Boss, which was already active in the Czech Republic in the past.
According to Klára Bejblová, an expert from CBRE, the number of international brands that have entered the Czech market appears to be the highest since 2019. “So far, it is thirty percent stronger than in previous years,” says the expert, adding that while in 2019 over sixty percent of brands preferred malls, today the same percentage of brands prefer major city streets.
“In terms of segments, new stores were opened mainly by brands in the service and gastronomy category, namely barbershops, florists, key repair shops or pet stores. At the opposite end of the spectrum, i.e. among those that closed more, there were stores from the category of sports, fashion or household goods,” mentions Jan Janáček.
Outlets are the absolute winner
According to Jan Hübner, the CEO of Shopinga, outlet centers lead the way in brick-and-mortar retail. While brick-and-mortar retail brands in malls and outdoors are often still not fully recovered from covid, he says, outlets are performing better than ever.
“There are several reasons – tourism is growing again and it is closely connected with it. Many outlet centers, such as the Fashion Arena, have perfectly mastered marketing aimed at tourists, and even drive them to the centers,” says Jan Hübner.
It is said that many well-known brands would not survive without an outlet, because the former model no longer applies. “Originally, outlet centers were created to sell surpluses. However, brands wouldn’t do that today, so they also produce a special line designed specifically for outlets. The quality is lower, but customers can afford the brand,” explains Hübner.
There are only three luxury brands in the world that do not deliver to outlets – Louis Vuitton, Hermès and Chanel. And although outlet centers in Europe are not growing at the same pace as in the US, they are still increasing rapidly.
In many European shopping centers, Hübner observes that they now include not only restaurants and entertainment elements, but also coworking spaces. On the contrary, outlet centers do not follow this path – they do not want people to be distracted by entertainment other than shopping.
“Outlet centers were not affected by the online boom either. It had one great advantage, namely the building structure. Due to the fact that they have no common areas, it was the last to close and the first to open during covid,” reminds Hübner, adding that during covid the outlets also made money from the fact that many big brands such as Tommy Hilfiger or Calvin Klein sent returned goods from e-shops to the outlets and there, thanks to this, the stocks in the stores and, as a result, the sales increased enormously.
Competitive fight
The situation in food retail is no less lively, where, according to Tomáš Prouza, competition is intensifying. “Chains are rapidly building new stores to thicken the distribution network and modernizing older stores to reduce operating costs, especially energy consumption and human labor,” Prouza summarizes the situation.
A lot of investment in food retailing is going into automation and digitization. Examples are the fully automated COOP and Super Zoo stores, the first automated Dr. The number of unmanned cash registers or digital price tags is also growing rapidly. “Twelve to fifteen billion crowns are invested every year,” states Prouza.
According to Prouza, another trend that is showing itself more and more is the decreasing loyalty of customers. “People often switch brands, and stores have to invest significantly more to keep customers. So the costs of loyalty programs are increasing,” he says.
Younger groups of customers refuse to spend unnecessarily on well-known brands if they can find similar quality under a private label. At the same time, the savings are significant – according to NielsenIQ, the average savings for a private brand compared to a classic brand is up to 23 percent.
Customer behavior has been changed by covid and the inflation crisis. “For food, they are focusing more on quality today, so the volume of sales is smaller compared to 2019, but the average shopping basket contains higher quality food,” says Prouza, adding that this trend is unlikely to change.
To all this, all retail players must adapt the number and size of stores, the offered range and activity online and in brick-and-mortar stores.
SOCR cannot specify the exact number of food stores that have closed this year. “The last time the Czech state conducted a census of the business network was at the end of the nineties of the last century, since then we have no relevant data. In the food category, dozens of small shops in villages have closed because they are not profitable, many others have simply changed owners when they were taken over by Vietnamese traders who can operate at significantly lower costs than their predecessors in the given location,” explains Prouza.
Ivo Čižmár from the Association of Czech Traditional Trade, which mainly deals with food retailing and brings together merchants who have stores in regions or smaller towns, nevertheless does not see the future of brick-and-mortar stores in the segment in any way bleak.
“It is still the case that it is important for customers to be able to simply buy fresh baked goods or even cold meats. Although the importance of distribution services is growing and there are also a number of multinational chains, the fact that stores are available to people directly in their village or city is still a fundamental advantage for many customers,” says Čižmár.
AČTO does not yet have data for this year, but it recorded a decrease of 137 brick-and-mortar stores last year. “It’s a little more than in previous years, but it’s not a major jump,” comments Čižmár.
According to him, in recent years, they have almost exclusively closed stores that are not members of any network. “In general, I expect more consolidation in the entire segment, as shown for example by Makro with its Můj obchod brand, which brings together more and more independent sellers and partly unifies their strategy. Our other members, in turn, create partnerships with municipalities and run municipal stores together,” he says.
