A bright future lies ahead for shopping malls that will recognize the importance of investing in maintenance, marketing, tenants and the consumer experience. Humans are not robots and will never want to shop online
BIG was founded in 1994. The company has gained a reputation through the development and management of shopping malls and retail parks, mainly in Serbia and neighboring countries. Today, the company is developing and is on its way to becoming a European actor. The publisher of ACROSS magazine, Reinhard Winnivarter, spoke with Haj Galis, CEO of BIG Shopping Centers:
ACROSS: Tell me something about the founding of BIG in 1994.
Haj Galis: BIG is an Israeli company founded by Mr. Yehuda Naftali. He moved to the United States in 1973, and returned to Israel in 1994 and founded BIG Shopping Centers Ltd with the intention of transferring the American concept of large shopping malls, which did not exist in Israel at the time.
The first BIG facility was opened in August 1997. It was the BIG Beer Sheva, with a gross lease area of 40,000 m2 and a value of € 221 million; and today it is among the largest and most successful retail parks in Israel. We now have 22 shopping malls in Israel, and five more are under construction. In 2007, BIG started operations in Serbia, with its subsidiary BIG CEE, by purchasing plots in several cities. Due to the crisis, the first facility in Serbia was launched in 2010, when the cornerstone was laid for BIG Novi Sad
ACROSS: Can you briefly describe further key development steps of the company?
Galis: During the financial crisis, BIG focused on portfolio development in the United States, through the acquisition of 30 open malls (large malls and so-called lifestyle projects). Today, we are in the process of leaving the American market because more than 50% of the portfolio was sold this year. This process will be completed by the end of 2022.
In Israel, BIG is a recognizable name for retail parks. Israel is a developing country, so we still have great potential for growth. In Serbia, we are the strongest real estate retail company in terms of gross lease area, with over 200,000 square meters in nine shopping centers. We also have several logistics warehousing facilities and office space specially made for the American company NCR.
BIG entered the Israeli Stock Exchange (TASE) in 2006 and is listed on the TA35 Index. This is an index of 35 leading companies in Israel, with a net value of over three billion euros. The value of the BIG and AFI property portfolio together amounts to six billion euros in seven countries - BIG (USA, Israel, Serbia, France), AFI (Poland, Romania, Czech Republic, Serbia)
ACROSS: What exactly is the connection with AFI Properties and what does it mean for BIG?
Galis: In 2019, we had a strategic investment with a long-term perspective after we, as one of the parties, participated in the acquisition of AFI properties, a company that was in bankruptcy proceedings due to the parent company Africa-Israel. Then BIG took over 13% of the shares of AFI properties, and later our share increased to 23%. At the beginning of 2021, we proposed to the Israeli stock market to merge BIG and AFI, and then with 66% we became the main shareholder of AFI properties. Today, AFI is our key support for the development of business and residential leases.
Therefore, BIG is the main shareholder and majority owner of AFI properties. Mr. Eitan Bar Zev, Chairman of the Board of BIG Shopping Centers is also Chairman of the Board of AFI Properties. He was the CEO of BIG Shopping Centers for 17 years and is credited with leading the company to the huge success it has today. For BIG, AFI is a mainstay for the development of business and residential lease space. Unlike BIG, AFI has proven strong expertise in this area; therefore it has a high added value in a given type of project.
ACROSS: You have an impressive portfolio of objects (see information table). What role does retail play in your plans for the company’s future?
Galis: Today, 65% of BIG's total assets are retail outlets. We believe in retail in the present and in the future. This will remain the dominant category, along with business and residential space for rent. We are convinced that retail in its traditional form will survive and continue to flourish if we continue to provide our customers with a good experience.
ACROSS: What are your specific plans for the retail sector in the near future? I am talking primarily about the development of facilities and expansion in various countries. Which European countries are you particularly interested in and why?
Galis: Expansion is our main focus and basic strategy for the future. First, we will continue to develop facilities in the Israeli market. Israel is a strong country in every respect, and above all economically, with an annual population growth rate of 2.57%. We are leaders in the sector of open shopping centers in this market. Serbia is also a country we love and believe in a lot. In the near future, we plan to work on several projects here. We are constantly looking for new opportunities and we are sure that Serbia has a good future and that it will continue to develop in many branches of the economy.
BIG cooperates well with tenants equally in Israel and Serbia, which is why we are confident in our intention to grow and become the largest player in the regions of Central and Eastern Europe, especially in Serbia, Montenegro, Bosnia, Albania, Macedonia and countries where AFI is doing great (e.g. Romania, Poland, Czech Republic). The analysis we conducted on these countries showed great potential for development thanks to the fact that the concept of BIG retail parks literally does not exist here. We plan to enter all these countries in the next two years, and in five years we will be one of the largest companies in Europe in the category of open shopping centers, with the main focus on creating BIG retail parks.
ACROSS: What makes your retail outlets so special? How are you different from the competition?
Galis: At BIG we have a unique philosophy:
First, we have a unique approach to tenants; we see them as real partners and that business relationship is very strong. Our tenants know that they have an extremely good, realistic and fair partner who will support them in every way and in every situation. BIG is mainly focused on sales, especially on reducing operating costs, or what we like to call "load". We do not charge rent if the tenant is unable to make the sale and we are always prepared to reduce the rent if necessary due to the current sale. We have proven this many times, especially during the pandemic. This is the main difference between us and the owners of other shopping centers or funds. We have been managing our shopping malls for a very long time and we have no intention of leaving that business. That is why we are convinced that most tenants will follow us on all our projects and markets. They know very well that they will be able to make a profit with us.
ACROSS: And what is the second point of your philosophy?
Galis: Second, from a customer perspective, our retail parks offer a different kind of experience:
BIG retail parks offer the best combination of tenants compared to classic retail parks. When we talk about this merger of tenants, our retail parks are almost ‘roofless malls’. They generally have at least 30-40 stores or more, like any mall, while classic retail parks have significantly fewer stores (usually between 7 and 12 units) and offer only basic items.
In addition, the maintenance of our centers is at the highest level. Works and renovation of all systems (technical, greenery, common areas) are performed regularly (monthly and annually). We never neglect our facilities and pay great attention to constantly refreshing the interior and exterior (garden work, painting, etc.)
Constant investment in marketing is also one of our strengths. When it comes to size, our centers aim to be regional parks. If an ordinary retail park has an area of 6-8,000 m2, ours will be twice as large and will allow visitors, who live within a 20-minute drive, to find everything they need: a supermarket, electronics stores, furniture, fashion, drugstore, pharmacy, playrooms, cafes, restaurants, and very often a multiplex cinema.
These are the reasons why we are sure that both tenants and buyers will remain loyal to us and will follow us in the region of the former Yugoslavia, in Albania, the Czech Republic, Poland, Romania, wherever we go. We intend to build in these countries, but also to buy good existing facilities. We have already begun to analyze several opportunities that we plan to expand in these countries.
ACROSS: What "retail concept" do you want to expand? Can you describe this type of location in more detail?
Galis: We position the facilities at the entrance to the cities and close to the main roads for maximum accessibility. We are focused on the population that lives in the city, but also in the suburbs and surrounding villages. Our plots have a minimum of 3 hectares, with a retail gross lease area of 10,000m2. They are often larger, but that depends on the area and the potential of the location that our detailed analyzes show.
ACROSS: Do you see a clear difference between the types of shopping malls and retail parks?
Galis: Yes, there is certainly a huge and clear difference between the classic shopping mall (mall) and the concept of retail parks that BIG develops and manages. In this sense, BIG offers a great advantage to tenants, which is another reason why they are loyal to us.
In the classic shopping center (mall), tenants pay an average rent of 25-50 euros per square meter, while in retail parks the average rent is 30% of that price. The fee for the service in shopping malls is 7-10 euros per square meter, and in retail parks only 30% of that. As sales per square meter in retail parks are similar to sales in the shopping center, tenants will earn much more money on this difference in fees. This is how we differ and that is why the leading fashion groups and brands in the last few years have decided to open stores in retail parks. This type of change has helped us provide customers with a much better experience and offer.
Another significant advantage of retail parks is the efficiency of shopping. Spacious open parking lots and direct access to shops from the parking lot allow customers to make purchases quickly while in the mall this is a completely different experience due to the numerous levels in the garage, elevators and floors. Due to the COVID pandemic in the last two years, people even prefer to be outdoors, which has led to an average sales growth of 10% in retail parks compared to an average growth of only 2% in shopping malls. This is our experience in Serbia, Israel and the USA, so we can repeat the same experience in many other markets.
ACROSS: What is your retail strategy in general? Are you developing the property for sale / exit as soon as possible or is your goal to keep the property in the long run?
Galis: We at BIG are not allowed to use the word "sales". At the end of 2020, we decided to leave the US market because it is not favorable for us due to the lack of a long-term business relationship between tenants and landlords in the US market. That is why we decided to transfer this capital to Europe and invest it in retail, if in the energy sector. Two years ago, we launched BIG Energia, which plans to develop renewable energy-based projects across Europe. Two months ago, we announced our first facility to use wind energy in Romania.
We only act with a long-term perspective, where tenants can contact us knowing for sure that we will always be there for them, that we will not develop or sell all our assets to a fund whose focus is exclusively net operating income. We are not only focused on net business income, but we also take care of good sales and success of our projects. We do not save money in the short term, but we make money together with our tenants in the long run.
ACROSS: When it comes to the origins and history of the company, you have close and good contacts in Israel. Do your retailers benefit from this connection? What knowledge and skills are of particular use?
Galis: First of all, our knowledge and long-term approach based on the aforementioned philosophy helps us a lot in dealing with tenants. Over the last few months, I have talked to several tenants in Europe, who have told me that they have problems with landlords in other countries. In contrast, we get along extremely well and easily with our tenants.
There is a huge difference between tenants in Serbia and Israel, and there are only a few with whom it is possible to share both markets, as was the case with Decathlon and Babylon. This is harder to do with most brands because the markets have different habits, and are mostly limited by franchises and distribution rights, etc. Most brands in Israel operate through local franchises.
However, tenants from Serbia will certainly develop and expand their business to the markets of other Balkan and European countries, so I am convinced that many of them will follow us, for example Sport Vision, Fashion & Friends, LC Waikiki, Cineplexx, Intersport, Takko, Deichmann, New Yorker, Pepco, CCC, DM, Decathlon, Jysk and others.
ACROSS: The COVID pandemic is a difficult phase, especially for the retail sector; individuals even claim that this is the most difficult period of all. What did you learn from this phase or what might you have done better than others?
Galis: The COVID pandemic period has confirmed to us that our philosophy and way of working are effective. We worked in the same way at the beginning of the pandemic, and that helped us make a difference. While at the beginning of the crisis, many companies did nothing, waiting to see how the situation would develop, we immediately took measures and that gave us a huge advantage.
When the pandemic broke out, we were sure we wanted to protect our tenants. On March 15, 2020, when everyone panicked because they did not know how long the crisis would last, we sent a letter to all tenants in Israel and Serbia, stating that we would be with them during this difficult period and would not charge them rent or service fees if close stores due to quarantine. We wanted to support them and show them that we are long-term partners, that they can count on us in good times and bad. The years of the pandemic have helped us prove that it is not all about the story, but that we are really working. We are investing money in what we are talking about, even though we lost more than 30 million euros due to the reduction of the lease.
Therefore, in the last 12 months, during 2021, we have a great demand from retail. This is my nineteenth year in the company, but I do not remember such a demand from tenants for new space. They understand that it is an advantage for them if they become a tenant of our company, so they would like to do more business with us.
ACROSS: In asset management, you adhere to the principle of "all from one source". Is that really so? What do you see as the advantages? Will it stay that way in the future?
Galis: We know how to work in the best way. We specialize in shopping center management and that is our main advantage. If we left it to others, we would lose the advantage in which our DNA and Philosophy lie. The way we conduct maintenance, marketing, gardening and other jobs sets us apart from others. We have our own centers for managing the centers, but we still use the support of many external service providers. That is why we contribute to the creation of numerous jobs and significantly support the country's economy.
ACROSS: As far as I know, BIG CEE has always been known for being extremely active in location-based marketing. How important is marketing in your retail projects and what are your priorities?
Galis: I have already mentioned that we are the only owners of retail parks with unique open centers that we manage as closed centers. We invest the same amount of money, energy and creativity in the marketing of retail parks. BIG retail parks are not average parks, but differ in the way we do marketing.
We are constantly researching our customers and communicating with them through regular surveys inside and outside the centers. Based on this knowledge, we carefully create activities for different categories of customers (women, families, teenagers, men), trying to attract their attention through various advertising channels. We are present in all cities and we are always one of the biggest advertisers. This approach makes customers feel good while spending time in our centers, which ensures the loyalty of old customers and a constant influx of new ones.
In Israel, the word BIG is synonymous with retail parks, and our intention is to achieve that in Europe as well. We invest a lot in digital promotions and for each of our shopping centers we have a separate profile on Instagram and Facebook, with a large number of followers.
ACROSS: Speaking of your existing retail portfolio, what are your current priorities and why?
Galis: We are currently in the process of building our distinctive shopping mall at the entrance to Tel Aviv. It will have a gross lease area of 40,000 square meters, with all major tenants in the field of fashion. It will be called BIG Fashion Glilot and will set a new standard of shopping in the Israeli market. In addition to retail facilities, we will also have a business space of 70,000 square meters. In Serbia, we currently have retail parks with the best performance in the country according to all parameters.
Our biggest challenge is to achieve the same in Poland, Romania, Montenegro, Bosnia, Albania and Northern Macedonia, to provide a new kind of shopping experience and to introduce customers to it.
ACROSS: There are a lot of discussions going on right now, so I'm going to ask you the following question. In which direction is retail going - how do you see the development of retail in the near future, what do you see as opportunities and challenges in this area?
Galis: I predict a bright and favorable future for retailers. Based on our experience from the USA, I can say that the renaissance of retail will be a combination of classic retail and online shopping, and only traders who know how to reconcile these two ways will survive.
Likewise, a bright future lies ahead for shopping malls that recognize the importance of investing in maintenance, marketing, tenants, and the consumer experience. Humans are not robots and will never want to shop online. They will always need to go shopping. People want to socialize, to experience and feel something. Accordingly, retail will have to satisfy both the digital and virtual nature of shopping, design and architecture. Given that these trends are on the rise, retail will also have to keep up with them.