How to Launch a Brand on the Polish Market, Join the Game and Make a Success of it?
Poland keeps attracting new retail brands – most are foreign-owned and have a track record of operations in other countries. Some debuts, however, end in failure. Why? What are the common root causes of such failures? Szymon Łukasik, Head of Retail Department at Cresa Poland, advises retailers entering Poland.
Uniqueness of the Polish market
The Polish retail market is unique in terms of strong dominance of shopping centres over retail parks and high streets. This may come as a surprise to both Western European retailers and some operators from Central European countries.
Nowy Świat, Poland’s most expensive retail street, does not meet a number of high street tenants’ requirements. Its buildings are either obsolete or poorly maintained and potential tenants are faced with many legal challenges, including ownership issues.
Due to their brand profile, premium retailers focus on high street locations and some, seeing the dearth of suitable buildings in Polish retail streets, prefer not to establish a presence in Poland at all. That’s why there are so few luxury brands on the Polish market.
Poland is, however, a promising market to retailers offering mass products and targeting shopping centres. Consumers seeing their spending power rise by the year continue to expect new offers, which is reflected in a rapid growth in retail sales.
Changing regulations are a challenge for newcomers
Polish commercial companies law, tax and business activity regulations are not only complicated, but keep changing, recently in particular.
Sunday shopping restrictions which came into force on 1 March forced many retailers planning to enter the Polish market to recalculate project profitability levels. Retailers reacted to the ban more vehemently in Poland than in other countries where similar restrictions were introduced earlier. This was due to both a very short time in which they had to adapt to the new regulations, the nature of the ban itself and a long list of exemptions.
Poland also saw the introduction of a new tax on commercial properties in early 2018. Depending on lease provisions and their interpretation, there is a risk that a property owner’s additional tax burden will be shifted onto tenants.
How to prepare to enter the market
Even some experienced retailers may happen to enter a market too early or fail to think through a market entry well. They are sometimes under such strong internal pressure to make quick decisions that location and other choices later turn out to be less effective than expected.
It seems that the easiest way to enter the market for retailers who do not own a network of retail stores in Poland would be to sign an agreement with operators having an appropriate infrastructure of their own. But this would mean lower profits. In addition, operational models successfully tested on other markets may fail in Poland, and it is definitely far less expensive to learn from others’ mistakes than to make your own.
The process of entering the Polish market usually begins with a preliminary analysis and a strategy development in consultation with local consulting firms. This phase, i.e. from initial interest in the Polish market to store openings, may take from one to two years. While this process could be made much shorter, there is a risk of a weak location or high rent weighing on the quality of further expansion.
It is the search for suitable store locations and rent negotiations with landlords that tend to be the most time-consuming tasks. Planning logistics operations is also important but can be done only when the choice of locations has been made. Marketing and staff recruitment are possible in the meantime. Activities that are not directly connected with sales are unlikely to delay a market entry provided that it is well-planned.
Retailers entering Poland a dozen or so years ago relied largely on their own experiences from other markets and the expertise of hastily-recruited Polish experts.
Since then, this market has become fully professional. Practically all newcomers to Poland look to local advisory firms for support. By doing so, they are able to reduce the risk of failure due to a poor location, logistics or legal issues.
Franchise as a way of entering the Polish market
Franchising is a popular and relatively safe way of entering Poland. Franchisors accept potentially lower profits from not having their own retail network. They need to share profits with franchisees who bear a considerable risk, but in return they gain the confidence that their products will be sold by operators having first-hand experience and knowledge of the Polish market. A franchisor’s brand becomes well-recognised and individual stores compete with one another without detriment to the franchisor who can use this experience to build its own distribution network in the future.
Due the dissimilarity between the Polish and their home markets, foreign franchisors sometimes appoint a master-franchisee being a local operator who is granted a franchise and a right to grant further franchises in Poland. A distribution network is then more independent of the franchisor.
In neither case is the distribution network owned by the franchisor Therefore, retailers seeking to have full control over product sales may be unwilling to embrace this solution.
Build a market position and maximise profits
Launching a brand on mature markets is a slow process focused on building a strong market position where profits come second. Returns on emerging markets are higher, offsetting a much higher risk and tempting even large global corporations to engage in short-term projects to maximise profits.
The Polish market is already well-developed, making it worthwhile to invest in the long-term position of a brand, and strong enough to provide an opportunity of higher profits compared to those in Western Europe. Poland also offers lower costs of skilled labour in addition to competition being still less intense than in the West. This opportunity is being increasingly seized upon by businesses from both the EU and Asia for which Western Europe is no longer attractive enough.
Therefore, retailers entering the Polish market are becoming increasingly focused on developing a long-term strategy of building a strong brand position.