Retail 2.0: e-commerce goes hand in hand with

RETAIL 2.0: E-COMMERCE GOES HAND IN HAND WITH OFFLINE SHOPPING

The local retail market has had a difficult 2021 amid the many ups and downs of the covid-19 pandemic, even as Romanians have largely embraced the new normal. With a moderate growth recorded this year, e-commerce continues to be one of Romania’s star sectors. However, despite having a huge potential to grow in the coming years, online shopping will continue to complement the offline experience, and not eliminate it altogether, because the consumer experience and the human interaction factor are more important now than they’ve ever been.

By Anda Sebesi

2021 was a more challenging year than the previous one due to a combination of stressors: the ongoing pandemic and restrictions, rapid changes in consumer behaviour, increased psychological pressure, economic and political uncertainty, changes in the supply chain, the energy crisis, and rising inflation. This mix of factors has created a lot of pressure and amplified unpredictability, even in the short term.

As a result, the volume and value of sales have fluctuated significantly, rising during periods with fewer restrictions and dropping once the pandemic hit new peaks. “It was quite a predictable evolution and it will unfortunately generate big gaps in the economy through a domino effect,” says Catalin Pozdarie, CEO at Hervis Sports Romania.

But Adrian Ariciu, CEO at Metro Romania, says that the slight increase in sales this year has led to a relatively stable level for the local retail market. He adds that Romania has shown a high appetite for consumption in recent years, especially on the food segment, and hence he expects this upward trend to continue in the future, but at a lower pace. “There is a great opportunity to create added value in locally processed products,” says the CEO of Metro Romania.

The company ended last year with a turnover of RON 6.1 billion, a 5 percent increase from 2019, and aims to post another one-digit growth next year. Currently, hospitality customers generate 20 percent of Metro Romania’s total sales, resellers account for 60 percent, while the remaining 20 percent comes from small enterprises (offices, associations, kindergartens).

Also this year, Metro Romania has continued to rapidly expand its LaDoiPasi franchise network, reaching 1,630 stores nationwide. “As a result, it is the largest network of independent stores in Romania right now and we want to expand to 2,000 stores by 2023,” Ariciu says, adding that this expansion is the result of the development of convenience retail, which performed well during the pandemic.

According to Sebastian Mahu, head of asset management at Iulius, 2021 will be well above 2020, but still below 2019, following the impact of the restrictions which are still in place. “Although there were times during the year (spring to summer) with footfall and sales results that were comparable to the pre-pandemic period, November 2021 saw a 25 percent decline from the summer levels, following the implementation of green certificate-based access to shopping centres,” he says.

This year, the company has focused on supporting the local entrepreneurs and producers in its portfolio, who are finding it harder and harder to cope with the extended crisis period. “This year we launched the Go Local programme, helping local entrepreneurs enter Iulius projects with rent-free periods and advertising packages,” Mahu says. He adds that in Iulius’s case, building a relationship based on trust and mutual support with its partners has helped it find a balance in the tenant mix. “This has allowed us to continue our opening plans with new brands entering the portfolio, as well as to maintain a vacancy rate of around 1 percent while also signing important collaborations for projects we have under development, particularly Family Market.”

A ROBUST SHIFT IN CONSUMER BEHAVIOUR

Consumer behaviour saw significant changes during the pandemic, with a majority of consumers having adopted online shopping and therefore retailers have had to quickly adapt to the new normal as well. “We saw many of our clients adopting a more active lifestyle and paying more attention to their food and quality of life. We also witnessed a shift towards locally made products in order to support both the Romanian economy and local producers,” Pozdarie says.

Along the same lines, Geanina Ungureanu, Senior Asset and Leasing Retail Manager at Immofinanz, says that another major trend among Romanian consumers has been the reduction of budgets for non-essential expenses, as the pandemic has led to considerable changes in buying criteria. As a result, quality became the main factor, followed by price. “The volume of purchases has increased, with a migration to local products at the expense of imported ones,” she says.

Fulga Dinu, Country Manager Operations at Immofinanz Romania, shares the same opinion when it comes to consumer behaviour. She says that visitors of the company’s shopping centres have developed more targeted and well-defined objectives. “Plus, they’re focusing on affordable products and discount stores, which is typical for difficult economic times.” But she says that recently, things have started to return to normal, pre-pandemic behaviour.

Dinu adds that today’s shoppers are demanding a safe environment, but also a smoother, more convenient shopping experience. She notes that the customer journey has been evolving for some time now. “It is no longer simply about visiting a store; it involves an overall brand experience through the omnichannel platform: having done their research online, customers arrive at the store knowing exactly what they want.”

Asked about consumers’ shopping behaviour during the pandemic, Mahu of Iulius says that the pandemic has already shaped new shopping habits and will continue to do so. “As an immediate impact, we noticed a drop in the average number of visits per month, while the length of the visits increased. Similarly, we noticed that restaurants and outdoor spaces have become an important anchor, with people looking for a safe space in terms of medical safeguards for social interactions.” Nowadays, he adds, the consumer is less focused on access to products and more interested in making the most out of personal time, experiences, and socialising.

As the pandemic’s strongest impact has been at the psychological level, the last two years have marked a shift in personal priorities. That is why Glovo SEE regional general manager Victor Racariu says that the company still sees growing interest from new restaurants and shops looking to join Glovo. “It is not just a way of making sure they’re able to continue operating during this period, but also because consumption habits have changed a lot over the last couple of years,” he argues.

The resilience of retail business models or concepts amid different crises might be what makes the difference between success and failure in the future, as uncertainty could be the key word for both the business environment and society. From this point of view, Ariciu of Metro Romania says that a customer-centric approach—a business model that Metro has adopted too—,which focuses on customers’ needs and expectations, is crisisresistant. This is because it is based on simple things like competitive prices and shelf availability. At the same time, Dinu of Immofinanz Romania says that the company’s STOP SHOPs are a cost-efficient, high-yielding, and crisis-resilient retail format. “An important aspect of these centres is their focus on low-cost convenience products, which are very popular with consumers in difficult economic times. This concept has proven successful during the covid-19 pandemic.”

Last but not least, Ariciu highlights another trend that is starting to take over the Romanian retail market. “Some retailers have made the transition towards business models like ‘buy online and pick up from the store.’ In fact, Metro has accelerated its digitalisation process so that through its digital services—the Dish platform for hospitality businesses, the Mshop ordering and delivery platform, and the Metro digital application that helps any professional customer easily manage shopping lists or invoices—the company has streamlined its interactions with clients.

OFFLINE SHOPPING WILL SURVIVE

"Although online shopping is increasingly widespread, owners of shops, small restaurants or cafes need to remain competitive and proactively encourage customers to visit their physical locations,” argues Ariciu of Metro Romania. He notes that despite the fact that it has contributed to limiting the covid-19 outbreak, social distancing has been a double-edged sword: while it’s been good for the public health, it has had a negative impact on all businesses, whether small or large. “As a result, retailers in every industry are looking for ways to keep

their customers by offering the right prices and offers,” Ariciu says.

According to Dinu of Immofinanz Romania, digital transformation will continue to evolve as fast as it has done over the past two years, and online shopping will complement offline shopping, but they will not eliminate each other, because the consumer experience and the human interaction factor are more important now than they’ve ever been. “The 93.8 percent occupancy rate we have in VIVO! centres at the group level, the constantly growing footfall figures, and the high demand for commercial spaces from international brands all stand as proof,” Dinu explains. “Shopping centres will need to build broader, more dynamic experiences that people can’t find elsewhere. Landlords and retailers need to collaborate creatively to drive footfall and boost dwell times to increase their revenue productivity,” she says, adding that there are also strategies based on creating mixed-use spaces that bring together residential, office, entertainment, leisure, health and wellness, and other novel experiences.

Along similar lines, Ungureanu of Immofinanz says that retailers’ biggest challenge nowadays is to continue to improve the customer experience and make the most of the advantages offered by offline compared to online. She adds that despite the health crisis having affected the majority of the company’s tenants, traffic is now recovering in VIVO! shopping centres.

“Even with some restrictions in place, we have returned to pre-pandemic footfall levels. We are confident that shopping centres will remain the main shopping destination for Romanians, and from this point of view, we are preparing and adapting them to the new market conditions. The most recent example is the refurbishment of VIVO! Baia Mare, which followed the upgrade of VIVO! Cluj-Napoca in 2019. Future refurbishments will include VIVO! Constanta and VIVO! Pitesti,” Ungureanu adds.

Nevertheless, Pozdarie of Hervis Sports Romania points out that international studies show that once consumers adopt online shopping, many of them either never go back to their old offline shopping behaviours or only still visit physical stores extremely rarely. But there are also many customers who prefer to see and try out products before they buy them. “In such a context, it is important for the retail sector to adapt to the new reality and find a new business model that allows it to grow through both the online and offline channels,” he notes.

BRIGHT FUTURE FOR E-COMMERCE

For Hervis Sports Romania, its online channel played an important role this year too, as many of its customers maintained their preference towards online shopping. But the company will record lower sales levels this year compared to 2020, when it operated exclusively online for a long period of time. “We will not hit a new record this year, but we are still seeing growth compared with the last ‘normal’ year,” Pozdarie says. Speaking about the development of e-commerce in the coming period, he predicts that the digitalization trend will continue next year too, regardless of situations that might be generated by the pandemic. “We all know that Romanians are big consumers of internet and technology. Hence, companies that will manage to deliver as quickly and conveniently as possible for their customers will be the winners in the near future.”

Moving on to the hospitality sector, the pandemic has caused restaurants and businesses all over Europe and the world to cease their normal operations. As a result, we’ve seen a noticeable growth of the delivery industry and of the number of users of food delivery services. “It’s safe to say that, even in the second year of the pandemic, we’re still seeing an accelerated migration towards online ordering, thanks to the convenience and speed of delivery,” says Racariu of Glovo SEE. By the end of the year, the company estimates that it will reach a traded value of approximately EUR 260 million on the Romanian market. “The increase is also due to the continuous investment in the Q-Commerce department. We launched Glovo Express in Romania this year, and so far we are operating 12 Micro Fulfilment Centres (MFCs) in six Romanian cities: Bucharest, Brasov, Cluj-Napoca, Constanta, Iasi, and Timisoara,” Racariu says. Glovo Express allows users to order up to 2,500 products through the app. In addition, the company also recently launched Glovo Concepts, a brand new portfolio of virtual food brands designed to help partners grow their business offerings while expanding the level of food choice and quality for consumers.

As for the future, Racariu says that Quick Commerce represents the evolution of consumer habits towards instant delivery. “Through it, consumers can purchase exactly what they need, when they need it. So, I think that pandemic waves will have a strong impact on e-commerce, but also that e-commerce will continue to have a well-established place in our lives after the pandemic ends.” In his opinion, the future will bring more mobile shopping and solutions that will respond to this new demand. Also, as e-commerce players will collect and leverage more data, they will be able to create new, amazing experiences for shoppers that will feel tailor-made. “In the future, even more than today, personalisation will make the difference between a regular delivery service and one that is fast and actually responds to a consumer’s immediate need,” Racariu concludes.

MODERATE GROWTH FOR THE DELIVERY MARKET

The second year of the pandemic crisis brought a moderate increase for the Romanian delivery market compared to 2020. Less restrictive measures, the pandemic routine, and the adoption of an “intermediary new normal” continued to influence consumer behaviour and generated a less accelerated development of e-commerce in Romania.

But Lucian Baltaru, CEO at Sameday, says that his company has kept its focus on value creation for its customers and on making business decisions that truly address their needs. “Our investments thus increased to EUR 50 million this year, with a focus on technology in order to optimise our delivery and sorting capacity and harmonise our internal processes with our clients’ expectations,” he says.

In addition, based on the rapid growth of online stores, Sameday started its internationalisation last year. “One year after we made this step, we’re seeing encouraging results in Hungary, where we made over 350,000 deliveries in November alone,” he says. The company has also invested in the development of the easybox locker network, which has grown tenfold in the last two years, reaching more than 2,600 locations now. “The increasing adoption of this service proves the need for delivery solutions that give the customer control and provide them with flexibility and convenience. For 60 percent of the online shoppers, the existence of the locker system has an impact on their purchasing decision.”

In Baltaru’s opinion, there is huge potential for online retail to develop further, both in Romania and in the region. But that development depends on several factors—from digital literacy to synergies between e-commerce and the delivery sector. “Creating a virtuous circle where we create value for our customers through innovation and continued investments in technology is the approach we’re banking on to ensure the growth of the delivery industry,” Baltaru adds.

INDUSTRIAL AND LOGISTICS GAINING MOMENTUM

2021 is considered to have been another excellent year for the local industrial & logistics market, sectors that are still gaining from the momentum created by the disruptive events of 2020. Although the first nine months of 2021 saw about 460,000 sqm of industrial spaces being leased throughout Romania, 31 percent below the same period of the previous year, the Q1–Q3 total leasing activity (TLA) makes 2021 one of the best years for the industrial market. “Romania is an emerging market that is growing and improving every year. This makes us very optimistic about the future of our sector, as we know that there is still plenty of space to evolve, develop new projects, and bring added value to the industry,” says Sinziana Pardhan, managing director of P3 Romania. As for the company she runs, she says that both locally and at the group level, P3 has recorded very good results over the past couple of years. “This year we have managed to achieve outstanding results in terms of leasing, and by the end of Q3 we are happy to report an occupancy rate of 96 percent across our entire portfolio.” According to CBRE data, at the end of the third quarter of 2021, Romania’s modern industrial stock amounted to 5.42 million sqm after the delivery of approximately 280,000 sqm throughout the year. “Representing half of the country’s stock, Bucharest is the main scene of action for logistics players, usually being the first area when they decide either to invest, develop or lease,” says Daniela Gavril, head of research at CBRE Romania. In terms of the new supply distribution in Bucharest the same date show that, the west and north-west development areas continue to add to their modern industrial stock, with established developers in the area expanding their premises. The north-west part of Bucharest is the city’s newest industrial hub, accounting for 17 percent of the capital’s new deliveries. The largest surface delivered in this part of the city during the third quarter of the year was the second phase of the Chitila Logistics Hub developed by Global Vision, increasing the project’s total leasable area to 37,400 sqm after the delivery of 15,000 sqm.

“If we look at figures, we’ll see that retailers and automotive players were the main drivers of demand in the first three quarters of the year, jointly claiming 39 percent of the total leased area. Two of the most disrupted sectors are strengthening their positions in a rebound effort that proves the strategic importance of our country for the companies operating in these fields,” Gavril notes.

The analyst add that the logistic sector continues to play an important role in the Romanian economy, and that new infrastructure deliveries, though still insufficient, will further contribute to its importance. “Even if we do need more manufacturing companies, two thirds of the total leased area were generated by storage, distribution, and logistics as the main purposes for which tenants required an industrial space. These three segments are responsible for 30 percent, 23 percent, and 15 percent respectively of the total leased area,” she says.

The nearshoring and redesigning of supply chains has created a movement that will continue for a few years, and this is a great opportunity for the Romanian industrial & logistics sector to seize. “Already under construction at the end of the third quarter of the year are about 700,000 sqm, which are expected to be added to Romania’s industrial stock by the end of 2022, pushing the country’s modern stock over a new threshold of 6 million sqm,” says Gavril.

As for the main drivers of the industrial and logistics sector, Gavril says that e-commerce has established itself in retailers’ businesses and customers’ preferences and thus it is expected to intertwine with the traditional way of buying things. “It is only up to retailers to choose the way they integrate the omnichannel approach into their selling strategies.”

“Moreover, with the ongoing uncertainties related to future pandemic restrictions, industrial players, whether they operate in logistics, distribution, storage or manufacturing, aren’t willing to confront any more major supply chain disruptions and are trying to strategically place themselves near their customers. These factors, along with others, should maintain the demand for logistics spaces on the upward trend that has placed this sector on the most wanted list for investors for two years in a row now,” Gavril concludes.

As Pardhan of P3 Romania says, market conditions for the further development of the logistics segment are looking very good. “With the accelerated adoption of e-commerce and the organic growth of the retail and logistics sectors which will require some players to set up large regional hubs, we will definitely see an increase in terms of demand volumes in the coming period. I am positive that some new projects, as well as expansion intentions will be announced during the course of the following year.”

HOW DOES THE FUTURE LOOK FOR THE RETAIL SECTOR?

Looking to the future, the Iulius representative remains moderately optimistic about 2022, when uncertainties related to the pandemic will continue to shape the general outlook. “Fortunately, nowadays we have become more resilient and have new tools to do business in this new context. But I think success in retail and shopping centres will be built around extremes. Super regional centres that focus on experience, entertainment, and diversity in terms of shopping will continue to grow; on the opposite end of the spectrum, retail parks will be champions in terms of efficiency and convenience. However, projects between these two extremes will have to suffer, failing to provide relevant services to increasingly demanding consumers,” Mahu predicts. He adds that as far as Iulius is concerned, he expects a V-shaped evolution, with lows generated by pandemic waves and solid recovery periods in between. “By the end of 2022, our performance should be at least comparable to our 2021 results,” he says. In turn, Ungureanu of Immofinanz says that flexibility and adaptability are key nowadays. “We plan to further develop our VIVO! portfolio through these upgrades, but we’ll also upgrade STOP SHOP, our retail park brand. This will most likely be the biggest trend of the coming period—the focus on medium and small cities, with formats built on convenience, neighbourhood, and the creation of community shopping centres where service diversity and safe family areas will be paramount for customers,” she says.