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Wrap-Up Keynote Lecture

Retail Development in Uncertain Worlds MAPIC 2010 Chris Igwe Head of Retail Senior Director CB Richard Ellis

CB Richard Ellis | Page 1

François Ortalo-Magné Director, Global Real Estate Master Robert E. Wangard Professor of Real Estate Wisconsin School of Business


UNCERTAIN WORLDS?

COMPONENTS FOR THE NEXT STAGE OF DEVELOPMENT AND GROWTH IN AN UNCERTAIN WORLD?

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UNCERTAIN WORLDS? 9 9 9 9 9 9 9 9 9 9 9

Sales History Benchmark Competitors Access to quality real estate Optimum footprint Planning approvals Identification of local partners Track record of franchisees Maintaining the integrity & values of the brand Choice & selection of new markets Operating costs Return on Investment

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UNCERTAIN WORLDS? Vintage Days are Over?

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UNCERTAIN WORLDS? Who holds the secret?

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UNCERTAIN WORLDS? The consumer is back!

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UNCERTAIN WORLDS?

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UNCERTAIN WORLDS

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Shopping Centre Projects Restarted Construction pipeline resumes:

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Lack of Quality Real Estate is still an issue Lyon or Paris – demand is there for prime sites

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HOW ACTIVE ARE RETAILERS 2010 ƒ 203 Retailers surveyed ƒ 8 major points from the study


CONFIDENCE HAS RETURNED 77% OF RETAILERS TO OPEN > 5 STORES IN 2011


CONFIDENCE HAS RETURNED European Consumer Confidence Index September 2010

Source: Ecowin, September 2010 CB Richard Ellis | Page 13


CONFIDENCE HAS RETURNED Retailers’ Expansion Plans in 2010 and 2011

Number of stores CB Richard Ellis | Page 14


MOST ACTIVE SECTORS A. SUPERMARKETS / COFFEE & RESTAURANTS B. MID RANGE FASHION GROWTH 28% TO OPEN > 30 STORES VERSUS 16% IN 2010


MOST ACTIVE SECTORS Proportion of Sectors Intending to Acquire 30+ Stores Mid-range Fashion

Value & Denim

2010

16%

19%

2011

28%

29%

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MOST ACTIVE SECTORS Retailers Consolidate Presence in Existing Markets

Sector CB Richard Ellis | Page 17


CONSOLIDATION A. ENTERING NEW CITIES IN EXISTING MARKETS B. LUXURY & BUSINESS FASHION MORE MARKET COVERAGE – FEWER STORES PER MARKET


TARGET MARKETS


TARGET MARKETS

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1. GERMANY

41%

2. POLAND

33%

3. FRANCE

33%

4. SPAIN

30%

5. UK

29%

6. RUSSIA

28%

7. CZECH REPUBLIC

28%


TARGET MARKETS What Are the Retail Hot Spots?

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INTERNATIONAL IMPERATIVE 41% OF RETAILERS TARGETING AT LEAST ONE COUNTRY IN CEE – CENTRAL & EASTERN EUROPE AND 39% IN SOUTHERN EUROPE


INTERNATIONAL IMPERATIVE Where are Retailers Looking to Expand in 2011?

Country CB Richard Ellis | Page 23


OWN STORES VERSUS FRANCHISE PREFERENCE FOR OWN STORE EVEN IN EMERGING MARKETS


OWN STORES VERSUS FRANCHISE Own Store Expansion Preferred

Sector CB Richard Ellis | Page 25


OWN STORES VERSUS FRANCHISE Franchising More Popular in Emerging Markets

Sector CB Richard Ellis | Page 26


ON-LINE RETAIL


ON-LINE RETAIL FASTEST GROWING SECTOR ƒ MULTI-CHANNEL DISTRIBUTION STRATEGY. ANNUAL SALES CAN EXCEED € 1 M EXCLUDING VAT ƒ H&M, ZARA, RALPH LAUREN LAUNCHED WEBSITES IN 2010 ƒ 50% HAVE NO PLANS TO SIGNIFICANTLY CHANGE TRANSACTIONAL CAPABILITY ƒ 30% WILL EXPAND GEOGRAPHICAL COVERAGE

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ON-LINE RETAIL

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Expansion of Online Transactional Capability

35% 30% 25% 20% 15% 10% 5% 0% Geographical coverage

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Product coverage


GLOBALISATION


GLOBALISATION

• 17 % TARGETING ALL FIVE REGIONS (EMEA, N&S AMERICA, ASIA AND PACIFIC) • 37% TARGETING 2 OR MORE REGIONS

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THE RETAIL MARKET IN FRANCE OCTOBER 2010


Economic context


Macro economic environment

The retail market in France

A weak and unstable consumption: households’ expenses in manufactured products increased in July, but fell in August   Households’ confidence has slightly picked up but remains further from its longterm average   Retailers’ cashflow is improving very slowly   Occupancy costs are considered high, especially in shopping centres, but also in the city-centre   A downward pressure on sales density (turnover/sq. m pa) due to the weak trend in sales, reduced footfall and the Internet   The cannibalisation effect of e-commerce is more and more noticeable. Sales could rise from €31 Bn in 2010 to €46 Bn in 2012

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Households’ confidence index 20

The retail market in France

10

0

-10

Long-term average -20

-30

-40

-50 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source : INSEE

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Consumption will increase slightly

Trend in households' consumption The retail market in France

4%

3%

2%

1%

0% 00

Source : INSEE, CPE

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01

02

03

04

05

06

07

08

09

10 (f)

11 (f)


e-commerce did not experience a crisis Trend in B2C e-commerce turnover (in billion â‚Ź) The retail market in France

50

40

30

20

10

0 2000 Source : Fevad

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2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 (f) 2011 (f) 2012 (f)


Fall in sales

The retail market in France

Average turnover per sq. m and by business sector of the 100 top retailers per category in France in 2009 Sector

Turnover / sq. m pa

Annual trend

€8,946

-7,00%

DIY / gardening

€2,216

-3,30%

Personal goods

€4,403

-2,40%

€8,564

-2,30%

€4,099

-7,50%

Sport

€3,776

-0,50%

Department stores

€5,580

-6,20%

Car centres

€3,201

-3,20%

Total sample

€6,537

-5,90%

Supermarkets, hard discount retailers, superstores

Household goods Culture, games, multimedia

Source : LSA

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Footfall in French shopping centres

3%

2.5% 1.8%

2% 0.8%

-2%

-1.7%

-3%

-2.2%

-2.5%

-2.8%

-2.9%

-4% -4.3%

-5%

-4.7%

-6% -7%

-4.8%

-4.8%

-5.5% -6.8%

-6.8%

-8% -9% -10%

Source : CNCC

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-8.4%

-6.7%

Jul-10

Jun-10

Apr-10

Mar-10

Feb-10

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

Aug-09

Jul-09

Jun-09

May-09

Apr-09

Mar-09

Feb-09

-1%

May-10

-0.3%

0% Jan-09

The retail market in France

1%

1.7%


Trend in stock of shopping centres A trend far more slow than that for the whole retail market

16,000,000 sq. m

The retail market in France

14,000,000 sq. m

12,000,000 sq. m

10,000,000 sq. m

8,000,000 sq. m

6,000,000 sq. m

4,000,000 sq. m

2,000,000 sq. m

0 sq. m 2003 Source : Panorama TradeDimensions

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2004

2005

2006

2007

2008

2009


A sensitive trend in turnover Trends in turnover of the Procos panel* of retailers

The retail market in France

(compared to the previous year, on a comparable basis)

5% 4% 3% 2% 1% 0% 2004

-1%

2005

2006

2007

2008

2009

-2% -3% -4%

City-centre and shopping centres

-5%

Retail parks *The panel is composed of 233 specialist retailers with 33,460 points of sale and 35% of specialised retail in France in turnover.

Source : Procos

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Uncertain restart to turnover Trends in the turnover of the Procos panel* of retailers

The retail market in France

7% 5% 3% 1% -1% -3% -5% Jan-10

Feb-10

Mar-10

Out-of-town specialist stores

Units in out-of-town shopping centres

Units in town-centre shopping centres

Panel Procos

Apr-10

Town centre shops

* Variations in monthly turnover compared to the previous year on a like-for-like basis of 45 sites and close to 300 retailers’ results. Source : Procos

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May-10


Investments


Investment by type of retail

The retail market in France

Retail parks 5%

Retail parks 8%

City-centre 13%

City-centre 9%

Bricks and mortar 13%

Bricks and mortar 22%

Shopping malls 10% Shopping centres 40% Shopping malls 20%

Shopping centres 60%

2009 Source : CB Richard Ellis

CB Richard Ellis|Page45

Q3 2010


Retail yields

The retail market in France

City centre, n째1 sites

City centre, n째1A or 2 sites

Regional shopping centres

Retail parks

Source : CB Richard Ellis

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October 2009

October 2010

Paris

5,50 % - 6,50 %

4,75 % - 6,25 %

Regions

5,75 % - 7,50 %

5,25 % - 7,25 %

Paris

7,00 % - 8,50 %

6,50 % - 8,25 %

Regions

7,50 % - 10,00 %

7,10 % - 9,75 %

Ile-de-France

5,25 % - 6,25 %

4,75 % - 5,75 %

Regions

5,50 % - 7,25 %

5,00 % - 6,90 %

Ile-de-France

6,75 % - 7,75 %

6,25 % - 8,00 %

Regions

7,25 % - 9,75 %

6,50 % - 9,60 %


Trend in prime yields

The retail market in France

8%

7%

6%

5%

4% Shopping centres

City-centre

Retail parks

3% 2000

Source : CB Richard Ellis

CB Richard Ellis|Page47

2001

2002

2003

2004

2005

2006

2007

2008

2009

Q3 2010


Conclusions

ƒ

Still a challenging time for retailers

ƒ

Consumers still remain cautious, even as the economy recovers as we move through 2011

ƒ

For most, this is a time of real opportunity

ƒ

Flight to quality will still persist

ƒ

Emerging markets have recovered their attraction

ƒ

Still a reduced development pipeline, but now changing as economies revive allowing greater access to markets

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MAPIC 2010 –Wrap‐Up Keynote Lecture

Part 2:

Heard on the Floor François Ortalo‐Magné  with students from HEC and  the Wisconsin School of Business


Remembering MAPIC 2009 • The fog is lifting • We won’t go back to the “old normal” • The “new normal” remained to be defined …. and so this year?


How does your business activity this quarter  compare to same quarter last year? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Worse Same Better

Retailers

Others


Are you concerned about a double dip in the  European economy? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Yes Don't know No

Retailers

Others


The “New Normal”: Real & Virtual • Slow economic growth – Consumers spend less – Consumers respond to smart retailing – Competition fosters innovation

• The internet – New vehicle for interaction – New vehicle for information delivery


Real Retail: New at MAPIC • Emerging, fast growing economies • Much to be learned and structured • MAPIC example: India Same message heard just last week at MIPIM Asia: Understand our diversity! Ö A new opportunity to learn


Real Retail: Emerging Markets • Retail as a resort destination • Broad variety of offerings within a destination • Optimal mode of entry? – Franchising – Developer as retail partner

• MAPIC example: Egypt


Real Retail: Growing Maturity • Retail integrated within the urban landscape – Large mixed‐use projects – Retail both as a destination and a place to live

• MAPIC example: Turkey


Real Retail: Mature Markets • Dealing with existing properties – Redevelopment – repositioning – Responding to new consumer – new economy

• Dealing with the existing urban environment – Given economic geography – Socio‐economic challenges


Real Retail: Mature Markets • More than the shopping center – Once‐a‐week destination:  more than 4 hours – The daily destination: convenience, proximity

• Retail integrated with  – The full spectrum of property types: mixed‐use – The urban/historical environment – The political geography


New Relationship with Cities  • Retail as a driver – Of economic performance: shoppers & investors  – Of residents’ well‐being

• Benefit from integrated approach – Across land uses within a location – Across locations within urban area Ö Not necessarily within a single jurisdiction


Virtual Retail: The Internet • It’s there – Multidimensional – Complex – Resource intensive

• It’s still evolving • We need to learn and adapt


Virtual Retail: A Complement • Multi‐functional – Inform/question the consumer – Bring the consumer to the store – Complement store offerings

• Consensus on at least one thing In‐store pick‐up of web orders works


The Internet: New Questions • What is the role of physical space? – Flagship store as communication tool – Stores‐everywhere as communication tool – Store as the start of a virtual relationship

• What (new) relationship landlord – retailer?  – Contractual framework from the “real” age – But what now in an integrated real‐virtual age?


The Internet: New Questions • What relationship with suppliers? – Supply chain: shipping to store/to consumer – Retailer as partner in communication

• What relationship with the sales force? – Competitor with virtual sellers – Competitor with virtual advisors


Toward More Integration • Across types of real estate at a location – Mixed‐use development as a destination – Mixed‐use development as a place to live and  work

• Across locations within a market – Residents: Each location’s  contribution to welfare – Tourists and investors: Each location’s contribution  to the destination’s attractiveness


Toward More Integration • Across partners – Private – Private Retailers and Developers and Investors – Private – Public Working with Elected officials and Communities – Public – Public  Working across jurisdictions  ÖEconomic geography ahead of political geography


Great for the Consumer? • Everyone catering to my needs – Not just my shopping  – My overall welfare and that of my family – Fantastic spaces, experiences

BUT who will pay?  Mobile Internet: Thanks to iPhone, Blackberry, … Ö Pricing discipline on the whole process


How has MAPIC changed your outlook? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Less Optimistic Same More Optimistic

Retailers

Others


What is your perspective on your market  compared to last year? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Less Optimistic Same More Optimistic

Retailers

Others


Is your company hiring in the coming year? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

No Don't know Yes

Retailers

Others


The Future Looks Great (Even if we still have to pay for the crisis) • Great innovations coming our way – Politicians: talk to us and to each other – The mobile internet everywhere

• Contributing to a better world Real, Virtual, and In Between Ö More to learn from India!


Partners in real estate education Students who contributed to this presentation Meryl Delpech, meryl.delpech@hec.edu Yann Dauloudet, yann.dauloudet@gmail.com Philipp Kuhn‐Regnier, philipp.kuhn‐regnier@mailhec.net

MAPIC 2010 Wrap-up Keynote: Retail Development in Uncertain Worlds  

Delivered by Chris Igwe, CBRE, and Francois Ortalo-Magne, Wisconsin School of Business