Arcadia plans to rationalise its property portfolio so that it has fewer stores, but with more space. But, as the public steadily changes the way it shops, it’s not the only retailer starting to think that focusing on bigger and better stores makes sense, says Sara McCorquodale.
As Retail Week revealed last month, Sir Philip Green believes Arcadia’s future lies in fewer, bigger shops. In a move away from smaller localised stores, the tycoon plans to close some of his standalone Wallis, Burton and Evans outlets and house the brands in his sprawling Bhs stores.
So does this herald a wider move towards expansion in shop size – rather than property portfolio – which could change the face of the UK high street and the whole shopping experience?
The leases on about 300 Arcadia stores expire in the next two to three years. Green wants to use this as an opportunity to close many small stores housing one fascia. Once the retail giant’s portfolio is reshaped, Arcadia will have fewer stores but more square feet as it opens more flagship Topshop and Topman stores.
Arcadia is just one of several retail groups combining brands within single sites. Marks & Spencer is also reviewing its 668-store portfolio, finance and operations director Ian Dyson said last month. It will not be replicating its growth of recent years, and is also taking into account the rise of internet shopping. At its recent investors’ day Dyson said that a full review of the portfolio will include asking what its function is, and the retailer accepts that this is going to change over time.
Meanwhile, Monsoon and Accessorize now have more than 60 sites with both brands under one roof, and DSGi has also developed its megastore format, covering up to 60,000 sq ft, housing PC World and Currys in one space. Seven megastores are open so far, with plans for a further 20 in its next financial year and more beyond that, although the company points out that these stores are part of a flexible portfolio, which its other formats remain important to.
The general consensus at the British Council of Shopping Centres conference this month was that the move to fewer bigger stores is accelerating, encouraged by the increasing dominance of prime centres and retailers’ growing concern about their cost base.
Savills director of in-town retail Peter Barker, says bigger stores can offer better value. “For a start, more square feet can actually be more economical in terms of rent. Also, at the moment retailers are thinking to themselves, how can I innovate? How can I show I am moving forward and growing, even though there are hardly any new developments? So, they are looking at how they can use their existing stock while no one is building anything.
“Philip Green has outlined his utopian situation, but it won’t be as easy as just getting rid of the smaller stores. He will work to get as close to his ideal as possible, that is the best anyone can do,” he adds.
There is a strong argument for fewer stores, as former Selfridges chief executive Peter Williams outlined at the BCSC conference. Williams claimed retailers only need 100 to 150
shops to achieve national coverage compared with 200 to 300 three years ago because of the growth of online. Williams – who is also a non-executive director of Asos – called for reinvention of retail locations and he said the high street and shopping centres need a “seismic change”.
Hammerson managing director of UK retail Lawrence Hutchings agrees. He has seen the trend for fewer, bigger stores emerging for the past few years and believes this is a reaction to the changing way that people shop. He explains: “10 years back, retailers needed more shops to reach people but that has all changed. The internet, urbanisation and big retail parks mean people shop differently and expect different things from their experience. There is certainly a demand for bigger units in shopping centres.”
Because he saw this trend start before the recession, Hutchings believes it will continue beyond the downturn and is not just a strategy to survive economic turbulence. To create an experience in the way which retailers like Topshop at Oxford Circus or Apple on Regent Street have done, units have to be a certain size.
However, as Robert Wingrave, director of property agency Lunson Mitchenall, points out, the present financial crisis adds urgency to retailers’ need to invigorate their stores.
“It’s about profit. People don’t shop just to buy something and leave – they want a fuller experience. Retailers are competing for consumers’ leisure time. They are up against cinemas and theatres and need to be able to convince people that instead of spending their money on a film, they should spend it in their store.”
A mature market
Land Securities managing director Richard Akers believes retailers are only going to want to get bigger and bigger when it comes to store size. He says: “We exist to meet out clients’ needs and this has been going on for a really long time. Retailers have been looking for bigger space for the past 20 years so this is just a continuation of that.”
While it may not be a new strategy, Deloitte strategic retail adviser Richard Hyman, believes fewer, bigger stores will help retailers get the most out of their business in these troubled financial times.
He says: “With multiple retailing, there will always be some sites that perform better than others. In a period where growth is flat, those stores which perform less strongly are a drag on the rest of the business.”
“We’ve had 30 years plus of a market place where you can open space to generate growth – this option has diminished. The UK retail market is physically more mature than before and retailers need to squeeze the most out of their assets.”
Experian director of retail consultancy Jonathan de Mello agrees with Hyman that fewer locations could result in greater financial gain.
“Some types of retailers – like Starbucks and some mobile phone shops – want to have shops everywhere, no matter what,” he says. “But the majority need to make cash from every site. There’s a statistic that says retailers make 50% of their profit from 15% of their stores. What are the other stores doing? Retailers want prime locations instead of keeping shops open in second-tier towns.”
De Mello believes property covering more square feet also makes good financial sense. “Prime retail space can be good value because if the building has height and depth, proportionally you will spend less,” he says.
Everything under one roof
How the continued growth of ecommerce affects store portfolios is a crucial point. The online fashion market continues to grow rapidly, with Mintel forecasting it will have expanded by 26% this year alone. And IMRG estimates the UK online retail market has grown 14% year-on-year between January and October from last year.
In a September article on range rationalisation in Retail Week (September 25), we highlighted how retailers such as Comet and Mothercare – which was expected to explain how it is rationalising its property portfolio along with its interim results this week – are growing their ranges online, rather than in their stores. So will larger shops be appreciated in an age where digital shopping is booming but retail chains go bust?
Online sales versus bricks and mortar was a prominent debate at BCSC, with Williams heading the debate. He highlighted that the success of online retail means that reinvigorating property is more important than ever.
Meanwhile de Mello believes consumers’ changed approach to the shopping experience since the recession means bigger stores, led by the big supermarkets, are likely to prosper despite financial difficulty.
“Consumers are looking for somewhere they can get everything under one roof,” he says. “People are making fewer shopping trips; and when they do shop they are going to prime locations with bigger shops. There is a reduction of 10% to 15% in footfall to smaller shopping centres and meanwhile larger shopping malls have seen a concurrent increase.”
But what about the smaller stores and units? If retailers don’t want to renew leases on these shops will high streets and shopping centres become a combination of huge stores and small, empty spaces?
Capital Shopping Centres property director Caroline Kirby doesn’t think so. While she has seen more prominent retailers looking for bigger spaces, those that are emerging are keen to take over the spaces they vacate.
She says: “Smaller retailers are coming in to take the smaller units, there’s demand for all sizes, even though many do want bigger units. For example, Blue Inc has come into St David’s in Cardiff and taken a 4,000 sq ft space and it’s trading really well from there. We create experience shopping centres and customer requirements for brand and range choice mean retailers do need more space. But I think there will always be those who don’t want to take on a big unit.”
The move towards fewer, bigger stores is cost efficient and allows retailers to invigorate their stores and offer the consumer more choice. At a time where development is reaching a stasis, squeezing more out of the existing portfolio is one of the only ways for retailers to create the stores they need.
Investment and redevelopment of existing stores is also a way of encouraging consumers to buy into the shopping experience – not just the products, which in most cases can be easily bought online. While Green may have been the one to go public with his plans for Arcadia’s portfolio, it seems he is not the only retailer adopting the fewer, bigger strategy.