The race toward the cities is changing the global retail

Città
Michele Caprini
28 Aug 2019

Today, more than half of the worldwide population lives in cities and the European population seems to be the first one in progression, with a percentage of urban population that reaches 75% of the total (compared to the 60% of 1960s.)

(McKinsey Institute, July 2018)

Urbanism

By 2030, inhabitants of urban areas will be more than 5 billion (61% of the worldwide population at that time). Of course, it is not the first time in human history. Between the end of 800s and the second half of 900s, Rome went from around 200 000 inhabitants up to 3 million.

However, magnitude changes enormously. Onu foresees that by 2030 the number of megalopolis, cities with more than 10 million people, will increase from 31 to 43. In 1975, only 3 of those -tokyo, new york and mexico city- had more than 10 million residents.

Megalopolis will deliver 15% of the worldwide gross product.

Social transformations

The first consequence will be the increasing concentration of consumer income and purchasing power in big metropolitan areas. These will be considered, increasingly more, the main contact point of retail and the principal driver of the consumption trends.

The collateral phenomena of the increasing urbanization will be multiple and important. Among these, the delay in parenting, the reduction of family units, the narrowing of living spaces, the increasing gap between “haves and have nots”

Another trend in urban consumption is the increase of mono-parental families, which is an already dominant phenomenon in many developed countries and is quickly growing in developing countries. By 2030, 19,3% of families will be formed by one person. The shopping basket will consequently change.

In most of the urban areas in emerging and developing countries, consumers in working age (population between 15 and 16 years old) are still dominant.

However, the number of aged consumers, older than 65 years is increasing, not only in mature markets but also in developing countries. As a consequence, the urban consumption is more and more oriented towards services, such as healthcare assistance, education and traveling. In 2030 the consumption of material goods will be inferior to that of services.

Consumers change

The behavior of urban consumers is becoming increasingly more diverse and complex. Therefore, retailers will have to be aware of the changing demographic trends, lifestyles, purchasing habits and dynamics internal to every city. The profiling of consumers and the mapping of the purchasing process will be its prerequisite. And a real commitment should be demonstrated on sustainability.

Driven by transnational immigration, the share of foreigners in many cities increased. This brought to an increase of diversity and multiculticulturalism among urban consumers, making their demand more diverse and complex.

It is important, moreover, to develop an offer which responds to the urban peculiarities. In different cities, the profile of consumers is strictly connected to the local identity, which, oftentimes, overlaps the national one. And, in perspective, it could partially sostitute it.

Distribution formats

One thing is certain, the history of retail in the world is in direct relation with internal and external flux of people to the cities. In the US, the Sears case is emblematic.

1920, as a direct consequence of industrialization, was a year of turning point for Americans. For the first time in the history of their country, cities absorbed a share of population higher than that of rural areas. To meet the new demographic flux, Sears (the most important American retailer in 1989) significantly increased the number of department stores in cities.

40 years later, however, the same retailer was forced to double the number of suburban stores. Suburbs increased exponentially, and a company of the group, Homart Development Company, started the enormous development of shopping malls in suburban areas. It was an extraordinary success.

The desired planning has oftentimes failed, by substituting the urban slums to the traditional urban model.

Here something that you could try if you live in Great Britain. Go to your favorite urban place, whether it is the center of a big city or of a small market town. Close your eyes, turn around three times and walk to that direction for 15 minutes (or 1 hour if you are in London). I can foresee, with a reasonably degree of certainty, that you fill find yourself in a nasty place.

David Rudlin, Chair of the Academy of Urbanism

The turnaround

Today, the shift of the distribution channel to the cities is always more pronounced. The development does not pass through supermarkets and hypermarkets outside the urban perimeter, and in our western world the phenomenon is evident.

The case of convenience stores in the United Kingdom is suggestive of the importance they assume in the sector of new urban tendencies, or necessities, of consumption. By recognizing the importance of affordability and the relevance assumed by smaller families, big chains such as Tesco are directing their presence toward smaller formats.

Between 2013 and 2018, these selling units grew by 6,9% in terms of market dimensions, against a drop of 1,8 and 4,6% of supermarket and hypermarkets, respectively.

For these selling formats, in Germany, the results in the first quarter 2019 even suggest a loss of 5,5 percentage points in 2018.

Nobody, however, can state with certainty that similar situations show the same successful path everywhere. Walmart's Neighborhood and Walmart Express, for example, have been attempts to create smaller shopping points to align to the needs of the increasing urban population. This experiment proved to be a failure in 2016, when Walmart declared the closure of 154 shops, including all the 102 smaller ones.

In Asia, in the meanwhile, entire commercial villages are being brought into cities. The “vertical” shopping mall Hysan Place, in Hong Kong, is a building of 40 floors which includes 17 levels of retail.

For shopping malls and clients, in the end, the logic of the mountain and Muhammad is the winning one.