Portugal draws roadmap to retail survival

Portugal retail

Like all countries Portugal’s retail sector has been hit by the pandemic. But it is emerging with new strategies and confidence, reports Nicol Dynes.

There have been winners and losers in the Portuguese retail sector, delegates heard at the Lisbon REinvestment Talks, an online event on the REALX.Global platform in collaboration with Iberian Property.

“The retail market has been the worst hit by the pandemic but it hasn’t all been doom and gloom,” said Eric van Leuven, managing partner, Portugal, at Cushman & Wakefield. “It is difficult to get transparent, reliable data so we use our own, which shows that take-up in 2020 has been one third of 2019 and 75% of new leases have been in the high street, 64% of which is F&B.”

Fashion sales have fallen by 60% this year, he said, but other sectors, such as sports and electronics, have done well. Pharmacies are up 45%, and local minimarkets and convenience stores are up 36%, in line with the Europe-wide trend of shopping near home. 

“Shops were closed for two-and-a-half months earlier this year so the damage was done,” said van Leuven. “When they opened again customers did not flood back.”

As in the rest of Europe, many people in Portugal discovered the joys of shopping online during lockdown. But e-commerce is not well established and there is a long way to go. “The percentage of Portuguese who buy online is 37%, very far from the European average of 60%,” said Paulo Silva, managing director, Portugal, at Savills. “There is a great growth potential.”

‘Physical stores are becoming showrooms and the lines between physical and digital retail are becoming increasingly blurred.’

Paulo Silva, Savills

Around 80% of Portuguese consumers regularly access the internet, and 44% of those buy online, which is 37% of the population. Online purchases have increased by 18% this year, with some sectors doing particularly well: food shopping shot up by 40%, furniture sales by 39% and beauty and cosmetics by 28%.

“Physical stores are becoming showrooms and the lines between physical and digital retail are becoming increasingly blurred,” added Silva. “The growth of omnichannel shows that it’s not either physical or digital, it has to be a mix. Even Amazon has physical outlets now.”

Rethinking retail

Looking ahead, Silva presented a ‘Survival Guide for Retail’ (see above). Physical stores will have to be rethought, taking into account the lessons learnt during the pandemic. The goal will be improving shopping efficiency, providing more self-service solutions and pick-up hubs and rethinking not just the design and flow of the store but also its purpose, as it will become more of a showroom. 

Retailers will also need to develop their omnichannel strategies, providing different channels of interaction with the customer and seeking to enhance the shopping experience for customers in different ways and using more than one channel.

Everyone has been hit by the pandemic to some extent, so there has to be a sharing of the pains as well as the gains, Silva said: “Landlords have had rent payments held back, tenants are seeking to renegotiate their leases. In future there will have to be lease terms flexibility and shorter leasing periods, as well as collaboration to optimise omnichannel strategies.”

Portugal retail

Real estate strategies are central to successful omnichannel operations and understanding these strategies will help real estate investors capitalise on the growth and changes in the sector.

Supermarkets in general have done well and so have retail parks because “they are outside so people feel safer spending time there rather than in an enclosed shopping centre”, said Francisco Horta e Costa, managing partner Portugal, at CBRE.

Shopping centres have suffered and have not been helped by new rules. “There has been a moratorium on rental payments and the imposition of turnover only rent in shopping centres instead of fixed rent,” van Leuven said. “It was a controversial blanket measure imposed in July, which we regard as very unfair and hope it will be repealed soon.”

For shopping centres to thrive confidence needs to return to the market, but they also need to be rethought and transformed, said Horta e Costa: “They are definite losers now, but looking ahead they need to become meeting places, community centres, that will not just have shops and F&B but also health centres and co-working and so on.”

Some opportunistic investors are already looking for bargains in the sector. “We see funds looking at buying shopping centres experiencing difficulties, circling around to grab them on the cheap,” José Araujo, manager real estate, at Portugal’s largest private bank Millennium BCP.  “But there is a strong concerted resistance to lowering prices. We believe there are still some very good opportunities in Portuguese retail.”

A survival guide for retail 

Physical stores

  • Store space will be rethought taking into account the lessons that Covid-19 will leave
  • Rethink store purpose, design and flow
  • Improve shopping efficiency
  • Transformation of physical stores into showrooms
  • Self-service solutions
  • Pick-up hubs
  • Increase of convenience retail

Omnichannel strategies

  • Different channels of interaction with customers
  • E-commerce apps
  • Physical stores
  • Enhancing the shopping experience in more than one channel

Sharing the pains and the gains

  • Landlords have had rental payments held back
  • Tenants seeking to renegotiate their leases
  • Leases terms flexibility
  • Turnover rents
  • Shorter leasing periods
  • Collaboration in omnichannel strategies