Hay Galis, CEO of BIG SHOPPING CENTERS – We Are Long-Term Partners

BIG was founded in 1994. The company made a name for itself through the development and operation of shopping centers and retail parks, mainly in Serbia and the neighboring countries. The company is now expanding, and on its way to becoming a European player. The Publisher of ACROSS Magazine, Reinhard Winiwarter, talked to the CEO of BIG Shopping Centers, Hay Galis.

How was BIG founded in 1994?

– BIG is an Israeli company, founded by Mr. Yehuda Naftali, who moved to the US in 1973, and returned to Israel in 1994, to established BIG Shopping Centers Ltd. with the idea of bringing the American concept of power centers, which didn’t exist in Israel at the time.

BIG’s first project opened in August 1997, BIG Beer Sheva, with GLA of 40,000 m2 and a value of EUR 221 million; until today it is one of the biggest and strongest retail parks in Israel. As of today, we own in Israel 22 shopping centers, and 5 more 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 Serbian development started in 2010, when the corner stone was laid for BIG Novi Sad project.

Can you briefly describe the company’s further key development steps?

– During the period of financial crisis, BIG’s focus was the development of the U.S. portfolio, acquiring 30 open air shopping centers (power centers and lifestyle projects). Today, we are in the process of exiting the U.S. market, as more than 50% of our portfolio is sold this year and the process will be finished till the end of 2022.

In Israel BIG is a generic name for retail parks. Israel is a growing country, and we still have huge potential for growth. In Serbia we are the biggest retail real estate company in terms of GLA, with more than 200,000 m2 over nine different centers. We also hold several logistic warehouse projects and an office campus custom made for NCR, a U.S. based company.

Since 2006, BIG went public as a traded company in the Israeli Stock Exchange market (TASE), today we are listed in the TA35 Index. The index of the top 35 companies in Israel, whereas the Net Value of the company is over three billion Euro. The asset value of BIG & AFI portfolio together is six billion EUR, in seven different countries, BIG (US, Israel, Serbia, France); AFI (Poland, Romania, Czech Republic, Serbia)

What exactly is the connection to AFI Properties, and what does this mean for BIG?

– In 2019 we did a strategic investment with a long-term perspective when we became one of the parties in the acquisition of AFI properties which was possible due to insolvency of the its mother company, AFI Israel, when BIG took over 13% of the shares of AFI properties, later on our shareholding grew to 23%. In the beginning of 2021, we presented a proposal to the Israeli stock market for merging of BIG and AFI, and then we became the main shareholder of AFI properties with 66%. Today, AFI is our key arm for development of offices and residential projects for rent.

Therefore, BIG is the main shareholder and main owner of AFI properties. Mr. Eitan Bar Zeev, Chairman of the Board of BIG Shopping Centers is as well chairman of the Board of AFI Properties. He held the position of the CEO of BIG Shopping centers for 17 years and led the company towards the huge success it has today. For BIG, AFI is the arm for development of offices and Residential projects for rent. As opposed to BIG, AFI has a strong proven expertise in this field; therefore, it has a high added value in this type of projects.

You have an impressive project portfolio (see project information below). What role does retail play in your considerations for the company’s future?

– Today, 65% of total assets of BIG’s holdings consist of retail projects, we believe in retail today and in the future. It will remain the most dominant category, accompanied with offices and Residential projects for rent. We believe that offline retail will survive and flourish if we continue providing a good experience for customers.

Specifically: What are your plans for the retail sector in the near future? I am specifically referring to project developments and expansions in various countries. Especially regarding countries: which European countries are of particular interest to you, and why?

– Expansion is our main focus and core strategy for the future. First, we continue with the development of projects on the Israeli market. Israel is a strong country in any respect, and mainly economically, with a yearly population growth rate of 2.57%. We are the leaders in the sector of open-air shopping center on this market. Serbia is as well a country that we like a lot and believe in, and in the near future, we are looking to develop more projects there. We constantly look for new opportunities and we are sure that Serbia has a positive future and will continue booming in many economic areas.

BIG has strong relations with tenants in both Israel and Serbia, which makes us confident in our intention to grow and become the biggest player in the regions of Central and Eastern Europe, namely in Serbia, Montenegro, Bosnia, Albania, Macedonia, and also countries where AFI has strong operations (e.g. Romania, Poland, Czech Republic). The analysis that we did about these countries showed a great potential for development, due to the fact that the concept of BIG retail parks is virtually almost non-present there. We are planning to enter all these countries in the next two years, and in 5 years we will be one of the biggest companies in Europe in the category of open-air shopping centers, with the main focus of creating BIG retail parks.

What makes your retail projects so special? What makes you different compared to your competitors?

– In BIG we have a unique philosophy: 1st we have a unique approach towards our tenants, we look at them as a real partner and the connection is very strong. Our tenants know that they have a very good, realistic, and fair partner, who will support them in any aspect and any situation. BIG’s focus is generally on sales, especially OCR, or what we like to call Loads. We do not charge rent if the tenant cannot create sales, and we are always ready to provide rent reductions, if needed according to the actual sales. We have proven this, many times and especially throughout the Pandemic. This is the key difference between us and other shopping center owners and/or funds. We are holding our SC’s for a very long time and have no intention of exiting. This makes us confident that most of our tenants will follow us in all our projects and markets. They know very well that with us they will make a profit.

What is the 2nd part?

– 2nd, from customers’ perspective, our retail parks offer a different type of experience:

BIG retail parks offer the best tenant mix, compared to classic retail parks. When it comes to tenant mix, our retail parks are almost Roofless shopping malls. Most of them have at least 30-40 retail shops or more, almost like a shopping mall, whereas classic retail parks/convenience centers have much less shops to offer (usually between 7-12 units) offering only basic necessities.

Furthermore, maintenance of our centers is on the highest level. Works and renovations of all systems (technical, greenery, common areas) are conducted regularly (monthly and annually). We never leave our projects neglected, we give a high, detailed attention to constant refreshment of interior and exterior design (gardening works, painting, etc.)

Constant investment in marketing is also one of our strengths. Size wise, our centers aim to be regional parks. If a regular retail park is 6-8,000 m2, ours will be double in size and will provide to customers in the range of 20-min drive, everything they need: Supermarket, Electronics, Furniture, Drug store + Pharmacy, Playground and Entertainment, Fashion, Cafes, Restaurants, very often even Multiplex Cinemas.

For these reasons we are sure that both tenants and customers will continue being loyal to us and follow us in the Ex-Yugoslavia region, Albania, Czech Republic, Poland, Romania, anywhere we go. We intend to build in these countries, but also to buy good existing projects. We already started to analyze few opportunities in those countries that we are planning to expand to.

With which “retail product / concept” do you want to expand? Can you please describe this location type to us in more detail?

– We position projects at the entrance of cities and close to the main roads, for maximum accessibility. We target the population who lives in the city, but also at the outskirts of the cities and surrounding villages. Our plots are at the minimum size of 3 ha with 10,000 m2 of retail GLA, usually bigger, it depends on the area and its potential based on our detailed analysis.

Do you see a clear distinction between the types of shopping centers and retail parks?

– Yes, for sure there is a huge difference and clear distinction between classic shopping center (shopping malls) and the concept of retail parks that BIG develops and runs. In that respect, BIG offers a huge advantage to tenants, which is another reason they are so loyal to us.

In classic SC’s (shopping mall) tenants would pay an average rent of 25-50 euros per square meter and in retail parks, the average rent is 30% of that cost. Service charge in SC’s would be 7 -10 euros per square meter and in retail park only 30% of it. While sales per m2 in retail parks will be very close to SC’s, which results in tenants earning much more money. It is a huge difference and that’s why strong fashion groups and brands have decided in the last few years to open stores in retail parks. This kind of changes help us to give customers a much better experience and offer.

One more important advantage of retail parks is the efficiency of shopping. Huge open parking areas and direct access to stores from the parking lot, enable customers to make a quick purchase, while in a SC, one needs to deal with access via many levels of garages, elevators, floors, a totally different experience. The last two years of Covid, made people like to be outside even more, which resulted in 10% average growth of sales in retail parks and only 2% average growth in SC’s. This is our experience in Serbia, Israel and the U.S. and we can create the same experience in many other markets.

What does your retail strategy look like in general? Are you developing assets for sale/exit as quickly as possible, or are you aiming to hold your assets for the long-term?

– For us in BIG it is not allowed to use the word ‘sale’. At the end of 2020, we decided on exiting the U.S. market, which is not good for us, mainly because of the non-relationship long-term between tenants and landlords in the U.S. market, and hence we decided to move this equity to Europe to invest in retail and in the energy sector as well. Two years ago, we started the operation of our BIG Energia company, which is planning to develop renewable energy projects all over Europe. We announced our first wind project in Romania, two months ago. We act only with a long-term perspective, when tenants come to us, they can be confident we will be there for them, we will not develop and sell our assets to some fund who is focused only on the NOI. We are not only NOI oriented, but we also focus on solid sales and the success of our projects. We are not saving money on the short-term, but making money together with our tenants, on the long run.

In view of your origins and the history of your company, you have close and good contacts in Israel. Do your retail projects benefit from this connection? Which know-how is particularly helpful?

– First, our know-how and long-lasting approach based on our previously mentioned philosophy helps us a lot with tenants. In the last few months, I spoke with many European tenants, and they say that they are struggling with landlords in other countries. Whereas we usually have a very good and easy going understanding with our tenants.

There is a huge difference between tenants in Serbia and Israel, there are only a few tenants with whom it is possible to share both markets, like we did with Decathlon and Babylon playground. This is harder to do with most brands, as the markets have different habits, as well as most of them are limited due to franchise and distribution rights etc. Most brands in Israel are operating via local franchises.

However, for sure tenants from Serbia can grow and expand their operations to markets in other Balkan and European countries, and I am sure many of them will follow us, such as Sport Vision, Fashion & Friends, LC Waikiki, Cineplexx, Intersport, Takko, Deichmann, New Yorker, Pepco, CCC, DM, Decathlon, Jysk etc.

Covid represented a difficult phase, in particular for the retail sector; some even say it was the hardest test ever. What were your learnings from this phase, or perhaps, what did you do better than others?

– Covid period gave us confirmation that our philosophy and the way we work are efficient. We did the same at the beginning of Covid and that helped us to make a difference. While at the start of the crisis many companies did nothing and waited to see how the situation will developed, we acted immediately and that gave us a huge advantage.

At the beginning of Covid, we didn’t doubt that we want to protect our tenants. On 15th of March 2020, when everyone panicked and no one knew how long it will take, we issued a letter to all tenants in Israel and Serbia, expressing that we will stand next to them during this difficult time and that they will not be charged for rent or SC, if the stores will be closed because of the lock down. We wanted to support and show them we are long-term partners, that they can count on us in the good and bad times. Covid years helped us prove that we don’t only talk, we also do. We put our money where our talk is, even though we lost more than EUR 30 million in rent reductions.

As a result, in the last 12 months, during 2021, we have a huge demand by retailers. This is my 19th year in the company, and I don’t remember such a huge demand for new spaces by tenants. They understand that to be a tenant of our company is an advantage for them, and they would like to do much more business with us.

When managing your assets, you follow the principle of “everything from a single source”. Is that really the case? Where do you see the advantages? Will it stay like this?

– We know how to do it the best. We are specialized in shopping centers management, that is our main advantage, if we would give it to others, we would lose this advantage, where we have our DNA and Philosophy. The way we do maintenance, marketing, gardening, and all other operations makes us different from others. We have our mall management teams, but still use the support of many outsourced suppliers. Therefore, we help create many jobs and support the economy of the country significantly.

To my knowledge, BIG CEE was always known for being very active in customer marketing (location-based marketing). How important is marketing in your retail projects, and what are your priorities?

– As mentioned, we are the only retail parks owners, with unique open centers, managed as closed centers and we invest in marketing of retail parks same amount of money, energy and creativity. BIG retail parks are not just big boxes, the way we do marketing makes the difference.

We constantly learn about our customers and communicate with them, via regularly conducted surveys on the location and outside. Based on these learnings, we carefully create activities for different categories of customers (women, family, teenage, men) and make sure to reach their attention via various advertising channels. In each city we are present, we are one of the biggest advertisers. This kind of approach results in customers feeling good, while spending time in our centers, which ensures loyalty of old customers and constant inflow of new ones.

In Israel BIG is a synonym for retail parks and our intention is to achieve the same in Europe. We invest a lot in digital promotions, and we operate a separate Instagram and Facebook page for each of our Shopping Centers, with a huge number of followers.

In view of your current retail portfolio: at the moment, what is your pick out of the bunch, and why?

– At the entrance of Tel Aviv, we are in the process of constructing our flagship, lifestyle, shopping center with a GLA of 40,000 m2 with all anchor fashion tenants; it is called BIG Fashion Glilot. It will create a new shopping standard on the Israeli market. In addition to the retail, we will have 70,000 m2 of offices. In Serbia, we currently hold the best performing retail parks in the country, within all parameters.

Our biggest challenge is to create the same in Poland, Romania, Montenegro, Bosnia, Albania, north Macedonia, and to deliver a new type of shopping experience, and to educate the customers about it.

At the moment there are a lot of discussions going on. Hence the question to you: Quo Vadis Retail – how do you see the development of retail in the near future; where do you see the opportunities and challenges within the industry?

– I see a bright and positive future for retail. Based on our U.S. experience, I can say that the renaissance of retail will be a mixture of offline retail and online shopping, and only retailers who will know how to combine the two will survive.

Also, SC’s who will recognize the importance of investing in maintenance, marketing, tenants and customer experience will have a bright future. People are not robots and will never want to buy only by clicking, they will always have the need for physical shopping. People want to socialize, to experience and feel. Parallel, retail will have to meet the digital and virtual nature of shopping, design and architecture, those trends are on the rise, and retail will need to keep up the pace.

Source: Across Magazine

CEE-BIG Management Beograd

Big Shopping Centers

Across

BIG

AFI

Hay Galis

Reinhard Winiwarter

shopping centers

retail parks

development

management

coronavirus pandemic

plans