European Retail Destination Index

European Retail Destination Index
Looking beyond London and Paris

17 November 2016, by Marie Hickey

Operational fundamentals are the key to determining retailer appeal


While London and Paris are the top destinations for expanding international brands, all of the other major gateway cities included in our Retail Destination Index offer attractive opportunities.

By their very nature, these markets are considered the key retail cities for their respective countries, typically being the first point of call for new international brands before a potential national rollout.

Our methodology, which takes into account a range of measures related to retail spend, tourist flows and occupational costs, suggest Amsterdam and Barcelona may present the most attractive and immediate opportunities to prospective international brands after London and Paris.

However, each European gateway city has individual strengths which may enhance its appeal above other locations, dependent on the particular requirements of the retailer.

Margin potential

The performance of a given store will be based on a number of very specific features related to location, store size, staffing, product offer and appeal to consumers both local and international, amongst others. At a very macro level, however, examining retail sales at a city level, total occupational costs and level of competition/supply (opportunity score) can provide a loose indication of ‘profitability’ and how this may compare across the various European gateway cities.

Figure 5 details total annual retail sales benchmarked against the Savills retailer ‘opportunity’ score across the other nine European gateway cities. Those markets placed higher on the y-axis and further to the left on the x-axis could be considered as high revenue/opportunity markets, with the size of the bubble reflecting total occupational costs.

Based on this approach, while Milan performs very strongly in terms of sales potential, the city’s relatively high occupational costs (€13,900 per sqm per annum) may impact operational margins, although this may be offset by sales volumes.

Munich and Barcelona, who have similar retailer ‘opportunity’ scores to Milan, could offer an attractive alternative. Both lag behind Milan in terms of total retail sales. However, they have significantly lower prime total occupational costs, with Munich being 49.0% cheaper than Milan and Barcelona (75.0%).


Retail sales, ‘opportunity’ score and total occupational costs (€ per sqm pa)

Retail sales, ‘opportunity’ score and total occupational costs

Source: Savills Research, Oxford Economics

Expansion opportunities

As previously noted, the gateway positioning of all these European cities means that they will all be attractive markets to prospective retailer entrants. However, examining the retailer ‘opportunity’ measure in isolation highlights the relative strength of some markets.

Warsaw would appear to be the most constrained market with an overall ‘opportunity’ score of 2.2 stand-alone stores (based on top 10 global fashion brands/groups). This equates to 3.2 stores per 1 million of the population and 7.2 per 1 million overseas visitors. Likewise, Amsterdam also scores well against this measure with an overall score of 2.5.

Clearly the quantum of retail sales in both these markets, which lags behind some others, has, to a certain extent, restricted previous retailer expansion into these cities.

However, with both cities forecast to see strong retail sales growth over the next five years of 3.8% and 1.8% per annum respectively, with Warsaw forecast to be the fastest growth market of the 11 European cities, these could become increasingly attractive to expanding international brands.

The positive growth in retail sales of both these cities is also supported by strong operational fundamentals. The unemployment rate in Amsterdam and Warsaw is 6.1% and 6.4% respectively, the lowest after Munich (Figure 6). With low levels of unemployment often correlating with stable retail spend levels by the resident population, this suggests that from a revenue security perspective both markets should prove attractive.


Retail sales per capita and unemployment rate

Retail sales per capita and unemployment rate

Source: Oxford Economics

Overseas visitor spend enhancing market appeal

Part of the growing appeal of certain European retail markets is based on the number of international tourists they attract and how much they spend. According to the United Nations World Tourism Organisation (UNWTO) Europe saw 60.7m international arrivals in 2015 with a total spend of €406.2bn, having increased by an average of 3.8% per annum since 2012.

Excluding London and Paris, the largest city destinations for this international tourism spend are the Spanish cities of Barcelona and Madrid, with total visitor expenditure of €8.3bn and €7.2bn respectively. On a per-visitor spend basis, Madrid leads with an average of approximately €1,800 per visitor based on the latest data from MasterCard, closely followed by Barcelona with €1,000. The level of expenditure by international visitors in both these cities and level of historical growth, averaging 6.2% per annum since 2012, has enhanced both cities’ attractiveness to expanding international retailers.

The next tier of gateway cities, including Munich, Berlin, Milan, Rome and Amsterdam, all share similar levels of international visitor spend (Figure 7) meaning that on this basis alone there is little to differentiate them. Examining average spend per visitor suggests that Munich and Berlin may prove slightly more attractive.

Naturally, the attractiveness of a given city to international retailers will be determined by the specific requirements of the brand. For certain brands, particularly within the luxury space, those markets with a relatively affluent population and large number of high spending international tourists, are likely to have a stronger appeal.

This explains the draw of London and Paris to luxury brands, and why both markets have seen an influx of new luxury brands over the last three years. For example, London has seen 53 new luxury entrants since 2013, accounting for 35.8% of all new international openings over this period. Paris has seen 21 new luxury entrants, representing 23% of the total, over the same period.

While the smaller European ‘gateway’ cities will prove attractive to some international luxury brands, particularly those where high spending international tourist arrivals are increasing, the real appeal of these markets is likely to be within the mid-market and ‘aspirational’ tier.

Considering that these types of brands account for the majority of the retail market, the appeal of the gateway European cities looks set to continue.


Overseas visitor spend

Overseas visitor spend

Source: Savills Research, MasterCard Destination Index 2016


Key Contacts

Marie Hickey

Marie Hickey

Commercial Research

Head Office London

+44 (0) 20 3320 8288


Lydia Brissy

Lydia Brissy

European Research

Head Office London

+ 33 (0) 1 44 51 73 88


Subscribe to Savills research


Would you like to be notified via email about new research?