Wednesday, March 9, 2016

Mega Malls

RBB, the regional state-run TV network for Berlin, did a fine piece on the "Mall of Berlin".

A couple of years ago, some developers came up with this idea with property just east of the Zoological Gardens in Berlin.  It was to be this new shopping experience....270 stores....with upscale clothing, handbags, shoes, and gadgets of various types.

Rent was high if you wanted in, but the talk was ultra-positive and people felt thrilled to get a lease in the building structure.

We are eighteen months into operation now.  Players were in the original group to rent.....are leaving.  Various fronts are closed up and waiting new tenets.   Some people.....as RBB tells the story....are locked into contracts for ten years, so leaving isn't a practical matter.  As they tell the story.....for a hundred square meters.....depending on where you are in the structure.....you have to pay between six and ten thousand Euro a month.

You can go and figure the amount you have to make each month, after you add in the utilities, the employees, and cost.

The thing is....everyone was talking twenty million customers a year.  It's apparently not anywhere near that number.

There are several issues at work here.  First, there was this trend of "massive" back around twenty years ago.  If you got a large property....building big would attract people and you'd do well.

In Wiesbaden, two indoor malls opened within the past ten years.  One (in the center of the shopping district) is doing well.  Some shops occasionally shuffle out but someone replaces them.  They probably aren't making the expectation numbers discussed a decade ago, but it's enough to survive.

The second establishment.....over near the Wiesbaden train station....is leaning mostly toward a significant problem.  The developers and management are trying various ways to get more people to come in, but they've yet to cross any line of success.  The big idea was that people returning home at night via the railway station (barely one minute away)....would step in and buy some last-minute item. That philosophy and idea simply didn't work.

Over Frankfurt, there is the same trend....high expectations and reality hitting speed bumps.

Adding to the mess is the internet sales platform.  Between Amazon and a dozen-odd German sites, they've taken a fair number of the younger generation purchasers and gotten them stuck to simply ordering from home.

Where this is leading?  At some point, across Germany in the next decade....where the financial boom finally goes into some recession....these mega mall operations are going to fall like a brick.  A handful in the right place will survive.  But I would take a guess that well over half will face some type of failure and collapse.  It's hard to figure what you'd do with an empty building of such size and who would be willing to step in with new ideas to restructure the business operation of such a building.

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