2017 could be the year that retailers find themselves at a crossroads and have to decide what to do with their sprawling estates. But which way to turn? John Ryan reports.
If there’s one thing that can be said about the UK retail market currently, it has to be that uncertainty is the order of the day.
It’s a tough time to be a retailer. Rents are probably rising, if you operate any stores in the south-east, business rates almost certainly are and footfall and sales appear to be heading south.
All of which means that many are looking at what to do with store portfolios and how to manage them as they continue to represent a substantial part of the balance sheet.
And this boils down to three pretty simple questions: should you open new stores, refurbish existing ones or just sit tight, do nothing and hope for the best?
As is the case in so many instances of this kind, however, there is complexity in simplicity and, depending on who you speak to, you may get conflicting answers.
Desirable locations remain prime
“Everyone’s in the same place – in any given market in the world, there are a small number of places where you have to be and you’ll be looking to open stores there, and there are other places in a market where you don’t want to be and you’ll be closing stores,” he says.
“If you think of Uniqlo in the UK, all their stores are within 10 miles of where I’m sitting now [his office is in central London]. It’s interesting that they’re not opening in Manchester or Glasgow, for example”
Guy Smith, Arcadia
“We all used to have stores everywhere, but that’s not the way it works now.”
He adds: “If you think of Uniqlo in the UK, all their stores are within 10 miles of where I’m sitting now [his office is in central London]. It’s interesting that they’re not opening in Manchester or Glasgow, for example.”
Broadly, this probably means that the most desirable retail locations remain prime, and that money may be spent on retaining a presence, even if a local loss is the outcome.
This in turn means that new shops, in a measured way, will continue to find their way onto Oxford and Regent Streets, the Westfield centres, Bluewater, Brent Cross and maybe into Lakeside, but beyond this there are question marks.
There is also the matter of the differences between the various parts of the retail spectrum.
Bryan Roberts, insight director at TCC Global, says: “A lot depends on the sector. In grocery, unless you are one of the smaller players, like the discounters or the Co-op, it’s a matter of repurposing existing stores.
“Asda have done this in a few places where they’ve lopped the end off some of their stores and put a Decathlon in instead, or even a hairdresser.”
These are a couple of examples of what Roberts refers to as big grocers’ adoption of “radical surgery” to deal with their estates.
The sheds that used to be such a feature of this type of retail have been found in some locations to be surplus to requirements, and new uses are being given to them, breaking down the whole into smaller pieces.
Retailer collaboration gathers pace
It is worth noting too the phenomenon of retailers joining forces.
The same, if the indications of what has happened at the Sainsbury’s in south London are anything to go by, is true of other retail groups.
Having purchased Argos and Habitat from Home Retail Group last year, Sainsbury’s opted to put small versions of these chains into its store in Nine Elms, Vauxhall.
Putting non-food into food stores is a well-established strategy, but it seems to be gathering pace.
Refurb and rollback
What of chains that are familiar high-street names?
Jim Thompson, managing director of design consultancy 20/20, notes that while Maplin is opening a few new stores, the name of the game is taking a pilot store and then ‘rolling back’ the best of what has been done across the estate.
“The pattern of refurbish and rollback has been going on for a while now. It seems to be much more common to be challenged to do that kind of work,” he says.
But is doing nothing really an option if money is tight and the sales aren’t quite coming in at the rate originally anticipated?
Bill Cummings, owner of consultancy Twelve Studio, comments: “Whether it’s 2017 or any other year, I don’t think doing nothing was ever an option, because the people who’ve done nothing we don’t remember.
“There are lots of people who have lots of stores who need to do online better. So if anybody is going to be opening new stores, it will be the people who don’t have stores – the online merchants looking for a physical presence”
Bill Cummings, Twelve Studio
“There are lots of people who have lots of stores who need to do online better. So if anybody is going to be opening new stores, it will be the people who don’t have stores – the online merchants looking for a physical presence.”
2016 was noteworthy in London for the fact that there were more luxury retail openings in the city than anywhere else. Whether this phenomenon runs out of steam in 2017 is a moot point.
There is always an argument that the super-well-heeled are largely insulated from the vagaries of trivial concerns such as Brexit and sterling having a tough time, but for the rest of the market there is much to consider about which way to turn.
As Roberts says: “There are always people like John Lewis who will have some benefit from opening new space, because there are still great swathes of the country where they are not.”
Yet for every John Lewis, there are plenty of retailers that have outposts in almost every major UK town and city, and this year does look as if there will be a reassessment taking place in boardrooms about the wisdom of new store capital expenditure.
The trend towards fewer, better stores looks as if it may be the outcome not just of pressures from online retailing, but also the economic wisdom of lumbering an organisation with more mouths to feed.
Refurbishment may well prove to be the road down which to head in 2017.