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In Pole position: brands see a market opportunity

Elektrownia powiśle 3

A growing, stable economy and an increasingly international consumer mindset are making Poland an appealing market for brands seeking to expand.

Bridging the divide between central and eastern Europe, Poland has been neglected by retailers seeking to expand because of political and economic instability. However, the former Soviet state has put its history behind it, and is in a sustained period of growth.

In 2018 the country’s economy was the 23rd largest globally and the seventh largest in Europe. The International Monetary Fund expects its GDP to grow by 3.2% in 2019.

Market research provider Euromonitor’s 2019 report into clothing and shoe retailers in Poland noted that: “robust market conditions and Poles’ growing incomes resulted in consumers being able to spend more on apparel and footwear.”

International retailers are now entering Poland – Urban Outfitters and Primark have confirmed that their first stores in the country will open in the capital, Warsaw, in early 2020. But although a market of customers with money to spend and an increasing appetite for international brands may seem tempting, there are some hurdles to be jumped: the difficulties of operating in a new currency and adapting to different payment methods, along with price-conscious Polish shoppers’ unwillingness to shop online.

International appetite

Primark aw19 (2)

Primark autumn 19

Retailers’ decisions to enter the Polish market have been sparked in part by a growing demand for international names. Thanks to high levels of migration between Poland and western Europe, particularly the UK, the Polish fashion market is influenced heavily by international trends and brands. When Polish migrants to the UK return home – be it permanently or to visit – they bring their consumer habits and brand preferences with them.

John Bason, chief financial officer of Primark owner Associated British Foods notes that this connection was key to Poland’s appeal. “It’s a great territory for Primark – it’s got to be. There are people who have travelled through the rest of Western Europe and to London and that excitement of Primark coming to their home territory is great.

“The relationship between Poland and the UK is strong, in terms of living and travelling between the two countries, and so the brand knowledge is there.”

This may increase further in the future, as figures suggest former migrants are returning to Poland. Office for National Statistics data shows that in 2017, there were an estimated 922,000 Polish-born people living in the UK, but in 2018 that dropped to 832,000. Although there have been reports that this movement was triggered by the Brexit referendum in 2016 – the fall in Polish nationals living in the UK actually began before the vote, in early 2016.

Earlier this month, the Polish ambassador to the UK, Arkady Rzegocki, urged Poles living in the country to “seriously consider the possibility of returning to their homeland” after Brexit, citing the growing economy and improving living conditions.

Analysts familiar with the market tell Drapers that nationals have returned to Poland to start families and raise children closer to their relatives, bringing the money they earned abroad with them.

“Some want their children to have a Polish education, a lot come back to get support from families,” notes Sean Briggs, commercial director for Warsaw-based shopping development Elektrownia Powiśle, an ambitious, 580,000 sq ft mixed-use scheme set to open in March 2020 in a renovated former power plant, who has worked in the Polish retail sector for more than 20 years. “They come home with a good amount of money – they can buy an apartment and have a reasonably good lifestyle.”

The retailers Drapers spoke to remain unconcerned over potential impacts from Brexit on the Polish market. While uncertainty persists in the UK, demand for international brands in Poland looks set to stay strong.

“Many years ago you’d have a few international brands in the market, but now they are getting more and more popular,” notes Stefan Laban, global head of URBN International, owner of young fashion retailer Urban Outfitters, which is set to open its debut Polish store in Warsaw early next year. “There is more fashion demand for something new, interesting and cool.” Urban Outfitters’ store will be part of Elektrownia Powiśle. 

Focusing on an experiential offer, Briggs, explains that the centre aims to appeal to global retailers by offering an alternative to the Soviet-era shopping centres that make up 70% of all retail space in Poland: “We are trying to create a high-street feel to appeal to the sort of retailers that feel more comfortable in the high street. There are many retailers that don’t want to be in a shopping centre environment and need something a little more unique.”

Elektrownia powiśle 1

Concept art of the Elektrownia Powiśle shopping district

Multichannel imperative

For those seeking to access the market, the importance of digital and, in particular, the omnichannel model should not be underestimated. JP Morgan’s 2019 Global Payments Trends report estimates that the Polish ecommerce market is currently worth €9.9bn (£8.8bn), and is forecast to grow 10% annually between now and 2021.

However, Poland’s approach to online payments is at odds with the typical set-up for western European retailers. Bank transfers are the preferred form of payment, and JP Morgan reporting that 50% of all online payments in Poland are made via transfers. Card payments and digital wallets – such as Apple Pay or Google Pay – are on the rise, but they are by no means the norm, and any ecommerce provider would need to cater to Polish shoppers’ habits.

Additionally, although online is growing and can be a good way to raise brand awareness in the country, Polish consumers are still relatively hesitant to purchase online, and prefer stores.

Briggs says that although 49% of Poles shop online, 49% of those still prefer to see and buy products in store. As such, a strong omnichannel offer is key.

Re office 2

Reserved autumn 19

Przemysław Lutkiewicz, vice-president of the management board at Polish fashion group LPP, owner of five brands including young fashion retailer Reserved, explains that developing stores and online in harmony has been central to securing growth in Poland.

“The development of new technologies [such as mobile] has shown that availability for the customer is the key to success in today’s business environment,” he says. “Our role is not to limit, but to progressively develop online and bricks-and-mortar stores to give our customers what they want. We treat all channels as elements of a larger whole that complement each other.”

LPP is one of the biggest names in the Polish fashion market. Reserved alone has over 200 stores in the country, operating in 23 international markets, including the UK, where it opened its flagship store on Oxford Street in 2017. 

A stepping-stone for further growth

Aside from its national appeal, LPP’s Lutkiewicz notes that for many retailers, Poland acts as a springboard to target central and eastern European markets from commercial and logistical perspectives.

“Situated at the crossroads of western and eastern Europe, we can boast an attractive geographical location, which may be a great logistics base for retailers,” he says. “Moreover, central Europe has good commercial potential, because every year it attracts more and more tourists from all over the world, and thus potential consumers.”

Briggs agrees, and notes that high levels of domestic tourism in Warsaw – which received 6.9 million Polish visitors a year – as well as international tourists makes the city a good platform for retailers to begin their eastern European expansions.

“If you’re a retailer and you have a brand that is good for the middle market, you can come to Warsaw, open a few locations and very quickly open elsewhere in the country and get critical mass,” explains Briggs. “You have scale in Poland that you don’t get in other countries, because we have a lot of large cities. It is then a good springboard to enter the other eastern European markets.”

 

A price-conscious nation

Although there is opportunity for international names in Poland, the market’s price-conscious mentality may pose a challenge for some prospective entrants.

Urban outfitters aw19 (3)

Urban Outfitters autumn 19

Euromonitor’s report notes that there is a “strong penchant among most Poles to economise”, and value chains perform well in the country. Although this makes the market a natural fit for value retailers such as Primark, others entering the market must find themselves a point of difference – or will fail to compete with retailers offering better deals.

Laban notes that for Urban Outfitters, is a place to offer good value and stand-out brands to appeal to price-savvy shoppers.

“Poles are some of the most price-conscious customers in Europe,” he notes. “They really know their quality-versus-pricing relation. If you want to succeed – and, like Urban Outfitters, your pricing is not at the same level as Primark or H&M – you have to bring something new or different in quality and brands, and we believe we are bringing that.”

The currency conundrum

In addition to a price-conscious consumer, Poland’s use of the zloty, rather than the euro, marks another challenge for those seeking to enter the market.

Large retailers such as Primark and Urban Outfitters can confidently enter the market independently. But one former retail industry treasurer financial director explains that less-established retailers will find it harder to enter markets with smaller currencies, such as the zloty, because of their volatile nature and fluctuating exchange rates. This means that there is more risk when hedging or forecasting sales.

“It’s another currency and another level of VAT. From an accountancy point of view, [the zloty] does make it more challenging,” agrees Urban Outfitters’ Laban. “To expand into Hungary, Poland and another country with a unique currency all in one year would just be more challenging and more complicated. That slows down eastern European expansion a bit.”

Despite its complexities, the international influence on Poland is creating a nation hungry for new names – something that only looks set to increase if Poles head home from the UK. Currency complexities, price-conscious consumers and a challenging multi-channel balance mean the market will not be a natural fit for all retailers – but for those suited to the market’s retail climate, Poland’s potential remains relatively untapped.

 

Poland at a glance

Population: 38 million

Largest cities: Warsaw (1.8m); Krakow (769,564), Łódź (687,702), Wrocław (639,383)

Fashion market value 2019: £3.5bn

Ecommerce market value: €9.9bn (£8.8bn)

 

(Statistics from World Bank, JP Morgan and Statista)

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