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Germany: Discounters conquer the city centers

For Discount Retail Chains Aldi (privately owned) and Lidl (owned by Schwarz Grupp) city centers were taboo for a long time. The rents were just too high. But now discounters are crowding more and more into Germany's pedestrian zones. An experiment that also harbors risks for companies.

The image of German city centers is changing. More and more fashion stores have to give up because of online competition and the effects of the Corona crisis. Instead, completely different stores are now pushing into the shopping streets: Aldi and Lidl. "Wherever it works from the rental price level, the discounters try to get into the absolute prime locations," said Dirk Wichner, Head of Retail Letting Germany at the international brokerage group JLL.

For years, the much-visited city centers were a kind of no-go area for low-cost discounters. The rents were simply too high to be able to sell groceries there at discount prices. "That has changed fundamentally since more and more textile retailers had to give up," emphasized Wichner.

The discounters make no secret of their plans. Aldi Nord is realizing "more and more stores in direct inner-city locations, shopping centers and pedestrian zones at central urban hubs," reported a company spokesman. Such central locations would not least be made possible by the increasing number of retail spaces in the city centers.

Aldi Süd already has seven stores in German city centers, one of them in Düsseldorf.

Aldi Süd is also finding branches stores of future opportunities and, as a frequency anchor, to close gaps in city centers," said a company spokesman. In cooperation with Galeria Karstadt Kaufhof alone, the discounter has already realized seven inner-city stores. In Düsseldorf, the discounter also has two stores in the pedestrian zone, and in Stuttgart it will soon be found on Königsstraße.

Arch-rival Lidl has also long been on the way to the city, for example with stores on Carlsplatz in Düsseldorf or the Isartor in Munich. "We deal intensively with high street locations at junctions with public transport connections," said Lidl property manager Marek Franz of the German "Lebensmittel Zeitung".

In addition to residents, the target group of the new city shops are also commuters who want to do their daily shopping quickly on the way home. The high footfall made the shops in the city centers attractive, Wichner reported. "There is a tough competition between the discounters for the best locations. The fight is tough." That doesn't necessarily mean that success is guaranteed.

"That is not necessarily a sure-fire success," warned trade expert Marco Atzberger from the Cologne trade research institute EHI. "It is not without reason that classic discount stores have large parking spaces in front of the door. Customers should make the largest possible purchase and then comfortably transport it home." That is not possible in a pedestrian zone and will have an impact on the size of the store. "These are experiments," said Atzberger, referring to the city stores.

With discounters through turbulent times

The fact that the discounters are ready to dare the "pedestrian zone experiment" in spite of the associated risks is not only due to the lower rents in the inner cities. For them, the city centers are the last blank spots on their Germany map. And the pressure on discounters is great to open up new growth opportunities. Because the Corona crisis brought all grocery retailers significant sales increases.

"The city centers are still uncharted territory for the discounters. But I am sure we will see a lot more stores there in the next few years. The discounters are really stepping on the gas in the fight for locations there," says Wichner. This trend is not only visible at Aldi and Lidl in Germany, but also in other countries were they are present such as in UK (London), France (Paris), Belgium (Brussels), Poland (Warsaw), USA (New York), Australia (Melbourne), China (Shanghai).

Other retailers are also in the process of venturing into the inner cities that have so far been dominated by fashion retail. Real estate expert Atzberger reported: "It is not just the discounters who are flirting with new locations in prime locations in inner cities. DIY stores and furniture retailers such as Ikea are also experimenting with them."

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