Malta’s bricks-and-mortar stores are increasingly competing with global online retailers. The country has the second highest number of e-shoppers in the European Union when it comes to purchasing clothes. While the retail landscape has been transformed in recent years from one of family-run small shops with a limited product range into that of larger outlets satisfying the more sophisticated and cosmopolitan tastes of modern Malta, the sector is still underdeveloped compared with most Western European countries. This actually presents the largest threat and the biggest opportunity for Malta’s retailers. The emergence of a new breed of shoppers looking for deals on the internet 24/7 is forcing offline retailers to provide a greater in-store experience and better service to distinguish it from the transaction-type flair of eCommerce. However, without significant investment it will be difficult to battle the might of Amazon, eBay and Alibaba. Malta’s retailers also have an opportunity in positioning themselves as a partner for the global payments industry. Due to the island size, contactless infrastructure could easily be rolled out nationwide.
Malta’s retail sector has undergone a gradual metamorphosis of late. Not long ago, it was highly fragmented, with many family-owned small businesses and a limited number of importers, wholesalers and distributors. The absence of international brands prompted the Maltese to head off to Italy or the UK for shopping sprees. Malta’s entry into the EU in 2004 changed all this: the liberalisation of the market encouraged more foreign chains to set up shop, forcing local traders to rethink their distribution strategies. As part of this makeover, the ‘all-under-one-roof’ concept has been gaining ground in combination with a substantial increase in retail square metres. Rising consumer expectations also mean that today many shops stay open all day instead of closing for lunch, as happens in most other Mediterranean countries.
Malta’s retail sector accounts for more than 20% of gross value added and employs some 30,000 people. Most products are imported and distributed by a limited number of business families. This factor, combined with the small size of the market and the lack of economies of scale, means that shoppers generally face higher prices than consumers elsewhere in Europe. Despite these challenges, the retail market represents an attractive proposition, borne out by the fact that although Malta is a small country, it is a major tourist destination with over 1.8 million visitors per year. The retail sector is also regarded as important as it offers a convenient route into employment for school leavers, semiskilled personnel and women returning to work, as well as providing them with promotion opportunities.
For a country that measures just 316 square kilometres, Malta boasts an array of shopping opportunities: street markets, fashion boutiques and shopping complexes. Most retailers are small companies, although some have several branches despite the small size of the island. The main shopping centres are the capital Valletta and Sliema, but tourist resorts such as St. Julian’s and inland towns including Birkirkara and Hamrun also host a number of outlets. There are only about 20 shopping malls in the country, with one of the longest established players being Sliema’s Plaza Centre. ‘The Point’ shopping mall, also in Sliema, is one of the newest.
In recent years, several European retailers have started collaborating with Maltese partners, and franchises of fashion and food stores have opened across the island. The country has attracted German discount supermarket chain LIDL, as well as UK retailers Marks & Spencer, Debenhams and very recently Matalan. Some local operators have invested in modern distribution facilities, working directly with European retailers, while others have contracts to represent brands in North African countries. However, demographics play a substantial role in the development of the sector. Because of the small size of the Maltese market, many global chains are reluctant to enter, among them popular brands such as Sweden’s fashion store H&M and furniture giant Ikea.
Footfall and Footprint
While the tradition of morning street markets is still alive in most localities, the retail sector has seen a vast expansion in modern shopping space in recent years. In general, large retail outlets owned by local distributors do not exceed 3,000 square metres, while foreign retailers in some cases reach 5,000 square metres. ‘The Point’ in Sliema, opened in 2010, is Malta’s largest shopping complex with a total retail area of 14,000 square metres, hosting some 55 shops and located adjacent to a high-end apartment complex. The island has been successful with the construction of mixed-use developments, with retail facilities part of a broader offering that includes entertainment facilities, hotels and residential units.
Registering high occupancy levels, Sliema is the most popular retail and leisure centre. The town’s main shopping street, Bisazza Street, has been turned into a fully pedestrianised commercial zone. Shop owners in Valletta are benefiting from the buzz created by the city’s nomination as 2017 Capital of Culture, which has given the city a new lease of life. Regeneration efforts are attracting both locals and tourists for shopping and dining experiences. In addition to Sliema and Valletta, well positioned operators are finding other opportunities to develop or enhance assets. One example is the expansion of the retail zone at Malta’s airport. Shopping complexes in secondary locations are also being established, hoping to attract customers with better parking and good public transport connections.
The Virtual Market
According to a Eurostat report, 51% of the total Maltese population shop online, with the highest share of 83% of e-buyers being within the 16-24 years age group followed by 79% e-buyers within the 25-34 years age group. Malta ranked as the second member state having the highest share of e-shoppers (72%) to purchase clothes online following the United Kingdom (74%). This also had a knock-on effect on Malta’s logistics sector. DHL, for instance, says that the business to consumer segment accounts for 30% of imports in most European countries, while in Malta it now represents 75% due to a booming eCommerce market. Lower prices abroad do not seem to be the main attraction for e-shoppers, with many actually citing product selection, speed of delivery and delivery options as reasons for online shopping. Traditionally, the Maltese have used foreign eCommerce portals, but the local online shopping market is also growing. With a population already familiar with online shopping, local eCommerce websites are encouraging small-scale businesses and individuals to trade.
Not just a Product Showcase
Retailers around the world are now combatting eCommerce by making their shops more fun and the experience more social. Retailers need to better engage customers by combining shopping with leisure and entertainment activities. Nike, for instance, has redesigned some of its stores to look more like a museum than a regular store. While those massive investments are usually out of reach for Maltese retailers, they can catch up with their online rivals by creating spaces where people want to spend their downtime. Today’s shops also need to incorporate the latest technologies, along with excellent customer services. For many, the answer is value-added services, and customers still crave a face-to-face interaction with a helpful, experienced member of staff. However, customer service is one of the issues that shoppers complain about most in Malta. Sales staffs frequently possess meagre qualifications or are students working part-time, all with little or no customer service training. However, more retailers seem to recognise that training and development of their staff can become critical components in improving a customer’s in-store experience. Most retailers are now offering formal training in sales techniques in an effort to increase service quality and to pave the way for a more customer-friendly environment.
The Luxury Opportunity
Some segments of the retail sector have better growth prospects than others. The industry believes that the market is close to saturation in the price-sensitive segment. However, increasing numbers of consumers are becoming more brand demanding, refined and service-conscious. While salaries in Malta are still lower than the EU average, Maltese consumers benefit from both competitive tax rates and social security contributions, giving them more purchasing power than other higher-earning Europeans. In addition, rapid economic growth over the past decade and an influx of foreign firms, often with highly paid managers and executives, has resulted in a growing percentage of wealthy consumers. But possibilities for spending their wealth are limited. As this group continues to expand, the demand for international brands and luxury items will continue to rise. Any new entrant could take advantage of this gap in the market. In addition, the presence of a range of four- and five-star hotels augurs well for any retailer bringing in the big brands and catering to high-end shoppers.
Opportunities are also emerging in the retail ecosystem as a plethora of new payment options are currently being developed such as contactless, biometric, wearable and mobile phone payments. However, these innovations are not propelled by customers demanding new ways to pay, but by technology companies creating new products. Therefore, it is imperative that retailers explain and market the advantages of new payment options to their customers. Due to the small size of the market, payments companies can also use the island as a test case in bringing new payments methods to market and in encouraging customers to adopt these technologies. Retailers that upgrade to the latest point of sale (PoS) technologies can benefit from increased productivity and shorter queues at the cash desk. Opportunities for growth are also emerging in the logistics and warehousing sector. The island’s central location and the facilities at the Malta Freeport are making Malta an attractive retail gateway and distribution centre for the growing economies of North Africa and Europe. Chinese retail giant Alibaba has already shown interest in Malta.
The Way to Go
Globally, there is also a trend of internet-native businesses creating physical stores, and this goes to prove that high street retailing is not dead. Local retailers agree that the potential for growth outweighs the current challenges. Malta’s affluent middle and upper classes are growing steadily, as is their appetite for international brands, shopping environments and products. As in most countries, there is a direct connection between the health of the economy, consumer confidence and retail spending. The retail sector benefits from low unemployment and moderate economic growth. This renders it a potentially lucrative one for investors, especially in niche markets. This augurs well for Malta’s retail landscape to continue developing in both size and sophistication for the foreseeable future, which will ultimately result in greater consumer choice.