Here’s what’s ailing Germany’s vacant city centers

What’s hurting German city center? Will the corona virus further weaken the health of our inner cities?

Haderlein: Let’s not be too pessimistic. After all, the first lockdown in Germany’s post-war history led many owner-managed businesses in city centers to take a big step into digitization. Closed stores and deserted shopping streets have made it clear that online visibility and delivery service of locally available goods is not just a nice-to-have, but sometimes the only way to get products in front of customers. If you didn’t have your own online store, you could simply process orders provisionally via email, WhatsApp, Facebook or Instagram. It’s also clear that the retail trade no longer plays first fiddle in the inner city orchestra. Rather than calling inner cities shopping cities we should be looking at them as living cities. 

Wölfel: That’s right, because city centers have been suffering for years from the consequences of one-sided approaches to the retail trade: There’s a weak mixture of uses of the city — with too heavy of a reliance on retail. It’s a tale as old as time. One that starts with the construction of the first pedestrian zone, then to the so-called car-friendly urban development, then to the one-sided focus on the inner city function of retail. With extremely high ground floor rents, one could afford to leave the upper floors empty in the middle of the city.

In addition, the triumphal procession of greenfield sites, specialty store locations and e-commerce has made it more than clear that although the city needs retail, retail no longer necessarily needs the city. With opportunities offered by ecommerce, we as municipal consultants must now not only work out more conversions and new space concepts, but also help to avoid digital vacancies.

We have no shortage of technology. There are enough tools to increase the “digital quality of stay” for locations or to bind local purchasing power via online visibility models, transaction-based online marketplaces or digital city voucher systems. However, we have a crucial lack of change managers* in the cities.

Haderlein: So that means first and foremost that cities have to conquer the online local space. The opportunities are obvious: Local search queries — whether they concern the best pizza in town, the opening hours of the library, the departure time of the train or the availability of products in stationery shops — has been increasing for years. In the cima.MONITOR, a representative consumer survey from 2019, over 50% of the working population stated that they use the online product availability check when planning a local purchase. Another nearly 20% would do so in the future. For younger target groups and city dwellers*, this digital service from the stationary retail trade means more than average. It’s no wonder given that more and more chain stores and large-scale retail companies are located in large cities, which already offer services such as Click & Collect (self-collection) as a seamless bridge between on and offline. 

Wölfel: In other words, checking the availability of goods in local shops will soon feel as natural as picking up bread rolls on Sunday. 

Which initiatives for local trade do you consider to be particularly helpful and sustainable in this respect? (exemplary)

Haderlein: First of all, we have no shortage of technology. There are enough tools to increase the “digital quality of stay” for locations or to bind local purchasing power via online visibility models, transaction-based online marketplaces or digital city voucher systems. However, we have a crucial lack of change managers in the cities.

Known as “Nanny 2.0”, change managers support owner-managed retailers on their way to becoming more digitally literate. These are managers of digital change: They should not be moderating the next round of financing for Christmas lighting in pedestrian zones, neither are they debating the level of parking fees in a heated atmosphere, nor are they advertising a Sunday when sales are open. Rather, they must be familiar with online marketing and e-commerce topics or the technical and conceptual intricacies of a multi-vendor online store. 

Wölfel: Training and learning by doing are essential in well-moderated digital transformation processes of  inner city retailing. It’s a must in order to inspire players to try new advertising and sales approaches. The “Online City Wuppertal” was one of the first pilot projects in this environment. In 2014, an infrastructure was established for the cooperative development of local players (online marketplace including same-day delivery).  Further training and an intensive moderation process made it clear that a digital marketing umbrella would be an important tool in the construction of business development, city management and city marketing. Today, cities like Bochum and Pfaffenhofen are continuing along this path. In other words, cities that rely purely technically on a white label model, but initiatives are well supported by a Nanny 2.0.

The retail trade cannot be saved, per say, but it can be raised to a new level of online competence if retailers take on some training. Owner-managed businesses that have learned to run e-commerce on a cooperatively organized local online marketplace, for example, find it easier to set up their own online shop or list on high-reach platforms like Amazon or eBay.

Haderlein: However, we are now also seeing strong tendencies towards solutions that do not require the difficult superstructure of change management by urban actors. Shöpping.at, for example, has just proven that it is possible to set up a local commerce project with over 1,000 Austrian providers without having to worry about cities or regions. Regional online marketplaces such as KaufinBW, on the other hand, are based on an established German white-label infrastructure provider. The platform is operated by a publishing house that recruits individual retailers from all over the country for its cross-media marketing concept and does not claim to digitally map individual cities.

Why do many local initiatives fail or generate little interest from customers and buyers?

Haderlein: I would deny that many fail. There are often category errors in the evaluation. Online shop windows that do not show the availability of goods are of little relevance to anyone who is interested in local customers on the Internet. Every online shop window operated by advertising associations or city management must therefore answer the question of what it can do better than Google Maps. 

Above all, the ambitions of larger providers have failed: Simply Local, Locafox, eBay City, AllyouneedCity – all of these initiatives have either disappeared from the scene or – like Locafox – have adapted their business models the market needs. The reasons are obvious: You cannot make a quick buck with local commerce initiatives. Plus, venture capital-driven companies are out of place when it comes to regional value creation — which need to be placed on a digital foundation with a lot of patience and foresight.

The local marketplace  infrastructure provider, Atalanda has grown in the background without much PR bluster and now provides its white label marketplace to around 30 cities in Germany, publishing houses, or even the whole of Luxembourg. The Freilassing-based company now makes it possible to connect around 25 different merchandise management systems and cooperates with major suppliers, brands and affiliated groups to provide product data to the local sales agent.

On the other hand, cities and advertising associations will of course have a bad experience if they thought that a local online marketplace built by a local web agency based on conventional shop systems would be sufficient.

Maintenance costs sometimes get out of hand, there is a lack of deeply integrated functions, the acquisition of merchants falters and the backend is anything but geared to the possibilities of digitally inexperienced participants. 

Well-managed local or regional online marketplaces are a strategic investment of locations. They can only grow organically. Merchandise management systems, if they exist at all, need to be connected. Retailers without digital experience must be convinced to become visible on the product level instead of just with address data. Training is needed on the legal framework, image processing or backend use of the marketplace. Caterers and service providers must be integrated with functions that a multi-vendor online store off the shelf cannot offer.

So local online marketplaces can only be advertised after a lot of homework has been done. However, “homework support” is not or underfinanced in many initiatives. And so retailers, councillors and mayors are surprised that poor product images, ten shelf warmers posted online or a 4-day delivery time do not knock the socks off local customers. Out of pity, they will not shop online either. Technical excellence is necessary

Wölfel: We have already identified the success factors and obstacles of digital city initiatives in our research project gemeinsam.online. We have already mentioned the importance of competent implementation support. And in addition to e-commerce-related indicators such as conversion rates, RoPo effects, sales figures and product range, the challenges of creating product data and the willingness of marketplace participants to cooperate are crucial to success. After all, they share an infrastructure with corresponding cost advantages, which must be used for digital umbrella marketing. With the snap of a finger, you certainly won’t be able to get a local or regional online marketplace into relevance or sustainability. Financing the start-up and awareness phase through funding pools is certainly just as important as choosing the right operator model.

Haderlein: With seven years of experience in implementing digital city and regional initiatives behind me, I would even add: Without grocery stores, i.e. without classic local supply functions, local online marketplaces would fail in the medium term. Fast-moving consumer goods are the bottleneck, so to speak, through which transaction-based solutions in cities and regions must be implemented. Whether direct marketers, organic food stores, butchers, or Rewe or Edeka merchants are involved is of secondary importance for the time being. However, the more regional products are, the greater the relevance of the marketplace.

What forces must work together on the ground for local trade to be successful?

Wölfel: As cima, we have over 30 years of experience in moderating decision-making processes in municipal contexts, especially those involving a central player such as the retail trade. We know how high the standard of cooperation and conflict management has to be when implementing classical or digital measures of city marketing or business development. From smaller working groups to steering groups and citizen participation, we always focus on participation and transparency for as many actors as possible.

In the urban environment, these undoubtedly include decision-makers from politics, staff units, representatives of the German retail and chamber of commerce, regional banks, the media, real estate owners, and representatives of local advertising associations or branch stores. Municipal utilities are also relevant participants in round tables. Often we are the direct sparring partner of city marketing and city management. We even take over tasks for these organizations with our project and neighborhood managers.

Do we need state or nationwide initiatives to save the retail trade?

Haderlein: The retail trade cannot be saved, per say, but it can be raised to a new level of online competence if retailers take on some training. Owner-managed businesses that have learned to run e-commerce on a cooperatively organized local online marketplace, for example, find it easier to set up their own online shop or list on high-reach platforms like Amazon or eBay. But then they also know what they are doing to themselves in terms of price, personnel, and product range and do not jump into the deep end.

One of the most important “bail-outs” of recent years, however, has undoubtedly been the introduction of the training occupation of e-commerce clerk – a quarter of a century after the invention of Amazon, although it was a long time coming, at least. Because even if companies have had the necessary pocket money to invest in digitization processes over the last ten years, they sometimes lacked qualified, affordable personnel to actually implement projects

Wölfel: It’s not as if it was the pandemic that first to raise the idea of supporting the retail trade in its entire breadth, down to the smallest business, with national measures. I would just remind you of the German Federal Ministry of Economics’ Dialogue Platform for Retail and the Alliance for City Centres of the HDE and DStGB, which we support. These initiatives are currently being reactivated and Economics Minister Altmaier is gathering relevant players around the Round Table.

It is clear that with the dramatic situation since Corona, financial resources will soon be available to support local trade. However, this should not be limited to the umpteenth pilot project, but we must reach many more cities and their inner city trade with scalable concepts and support services. There are many instruments of building law and urban development funding that have already proven their worth in practice and which must be applied consistently. This requires local rather than even more nationwide initiatives. cima is also strongly involved in committees and associations such as the Bundesvereinigung City- und Stadtmarketing Deutschland (bcsd e.V.) or urbanicom, which together with other associations from the fields of urban development, urban planning and retail has published a position paper calling for very concrete measures to cope with structural change in cities and retail.

What do you think about the initiatives of the big online players like Amazon, eBay, Zalando, Google & Co?

Haderlein: Amazon and Google are currently doing what they have always done. They are taking advantage of the moment to stylize themselves as the saviors of the retail trade. Of course, eBay does not do this without self-interest either. And the German Retail Association is glad to have gained new members with the Internet giants.

Interestingly enough, their approach is also to win future business customers through training and low-threshold entry opportunities – be it an Amazon marketplace trader who finds his way to Amazon Marketplace with the knowledge portal Quickstart Online, or a Google Ads user from the retail trade who only realized with the Google HDE initiative ZukunftHandel that there are inventory ads in Google’s search engine and maps environment.

In my book “Local Commerce” from 2018, I already described the sales-related PR approach of the large Internet groups with “Training is the key”. In our consulting processes as well, we have always relied on training as the most important pillar in the implementation of online visibility models.

Zalando’s approach to “Connected Commerce”, on the other hand, appears in a different light: ANWR GROUP was one of the first groups to sign a partnership agreement with Zalando as early as 2017 to connect the in-house digital project and marketplace model schuhe.de to the Zalando platform. The networking of the stationary specialised trade, but in particular the increase of its digital reach, therefore only takes place with and not without the online pure players

What will German city centers look like in 5-10 years?

Wölfel: Certainly not much different from today, when they get around the bend. But there will also be cities that get caught in downward spirals of trading. I am thinking in particular of the Ruhr area. But there will be conversions where structural change in the retail trade has made it through, but where clever and strong urban developers are at work. One or two libraries will once again be established as “third places” in the city center.

The inner city will become more diverse, smaller and ideally also an important social and not only economic space for interaction. In terms of planning, inner cities will certainly no longer be purely monofunctional and geared towards the retail trade. Gastronomy, culture, housing, work, education, health and living are all part of the European city ideal, which we will hopefully soon no longer just mourn but emulate. There are even signs of a renaissance of craftsmen’s yards and innovation centers in inner city locations.

Haderlein: … and by then we will hopefully have mastered the tools to adequately use the online local space – with infrastructures that are located in the territory of the urban actors.

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Books by Andreas Haderlein

• Local Commerce: How cities and inner-city commerce master the digital transformation. Frankfurt am Main 2018, 
• The digital future of stationary trade: to the customer via all channels. Munich 2012

Twitter: twitter.com/hybridfuture

LinkedIn: linkedin.com/in/andreas-haderlein/

About the cima

CIMA Beratung + Management GmbH is an interdisciplinary team of experts with many years of consulting experience in commercial, municipal and regional marketing, based in Munich, Stuttgart, Forchheim, Frankfurt am Main, Cologne, Hanover, Leipzig, Lübeck and Ried (A). 

cima is one of the most renowned consulting firms for retail and location development as well as marketing in the public sector in Germany and Austria. 

Its strengths are communication and cooperation at the interface between the public sector, private business and the active parts of the city society. As a coordinator of public and private interests, cima is a methodical and cooperative partner throughout Germany, working together with the actors in the municipalities to develop solutions to problems and impart knowledge and instruments.

www.cima.de