The explosion of online retailing has led some companies to reconsider the size and format of their stores, while others are carrying on regardless

With online retail spending set to triple to£28 billion by 2011, you might think that the big names on the high street would be measuring their growth click-by-click, not brick-by-brick. Yet, outside of a handful of sectors such as travel, books, home entertainment and, increasingly, electrical goods, this just isn’t happening. The internet is having very little impact on most retailers’ bricks-and-mortar expansion plans – or so they insist.

The fashion giants seem impervious. Next is planning to open between 60 and 80 new stores hand in hand with a growing online operation that’s proving successful, while New Look is on a similar path that is likely to lead to 400,000 sq ft (37,160 sq m) of new floorspace in this financial year.

Verdict Research’s assessment that spending by consumers shopping online rose by 33 per cent to£10.9 billion last year largely thanks to faster and cheaper broadband access, coincided with a mid-summer web site makeover at John Lewis. Despite these changes, their real-world property requirements have changed little – if at all. However, in the world of home entertainment – both hardware and content – it looks rather different.

It is 18 months since DSGi announced that as part of its multichannel strategy, Dixons would come off the high street and go online. The first nine months showed that online sales were up 160 per cent, the result of a wider online product range and keen pricing.

In the meantime, DSGi’s property requirements have changed substantially. Earlier this summer, Dixons pulled out of plans to open a 25,000 sq ft (2,325 sq m) store at Nottingham’s Trinity Square scheme. It was to be one of three anchors at the 180,000 sq ft (16,720 sq m) city centre development, built by Helical Bar and Overton Developments. This year, DSGi is likely to open only seven stores for each of its Currys and PC World formats – all of which will be out-of-town. It says that a mature business doesn’t need to keep adding to its floorspace the way it did 10 years ago.

John Strachan, global head of retail at surveyors Cushman & Wakefield, which is the letting agent on the Trinity Square scheme, explains: “There’s no doubt that some retailers have changed their approach thanks to online sales, but the main reasons for changes in property strategy have all been elsewhere. Top of the list has been the need to expand their UK businesses at a time when the route they used in the 1980s and 1990s – in particular, opening large out-of-town stores – is now closed to them. They have to find alternative ways to expand their floorspace and market share.”

Overseas expansion is also a favoured option. DSGi launched a franchise operation in Ireland earlier this year and, as Strachan suggests, it has been tempted by relatively low internet use in the rest of Europe, compared with the UK.

Like Dixons, HMV had to rethink its strategy to cope with online sales and this revision is still going on. The retailer, which is now in the midst of a turnaround after a difficult year for the home entertainment sector, has reported like-for-like sales up 5.8 per cent for the period January to March 2007. The new-look store format, which launched this month with an 8,000 sq ft (745 sq m) store at Merry Hill shopping centre, Dudley, is expected to drive sales even further.

HMV spokesman Gennaro Castaldo explains: “Bringing physical and digital together is the point of the next-generation store in Dudley, but we’re adapting more to customer expectations and perceptions than to the actual evidence of music sales, because downloads from the internet are still a small proportion of retail sales.”


Rivals have already decided on drastic action. Sir Richard Branson’s decision to back away from the 130 Virgin Megastores in the UK and Ireland after a management buy-out by Zavvi Entertainment Group is regarded by property experts as a downgrading of bricks and mortar, in favour of branding.

The Dudley store and a smaller 4,000 sq ft (370 sq m) format being rolled out in Tunbridge Wells will test HMV’s plans. However, it won’t necessarily mean a cut in floorspace requirements.

“You might think that digital technology means we need less floorspace, but actually, we’d rather fill any floorspace that it does free-up with other elements, like concessions and making the stores into social spaces,” says Castaldo.

By the end of this year, HMV expects to have opened six to eight stores – a rate of expansion that it says has slowed as it has shifted its focus back onto the future of its existing estate.
Guy Grainger, head of retail agency at surveyor Churston Heard, says that online retailing is having an uneven effect. “For the most part, changes in acquisition patterns by the big retailers have less to do with online retailing than they do expanding ranges of merchandise. Look at New Look, for instance, which is taking on another 50,000 sq ft (4,645 sq m) in Birmingham thanks to a massive shoe range and growth in menswear – something it wouldn’t have done five years ago,” he says.

“Fashion brands like River Island with a 10,000 sq ft-plus format and H&M with a 15,000 sq ft format are still aggressively adding to their portfolios, albeit by looking at smaller markets. River Island, for instance, is opening in North Finchley in a bid to increase its sales.”

Head of in-town retail at GVA Grimley Jason Sibthorpe agrees, adding that the impact of online retailing might not be shown in the volume of space requirement by retailers, but in the rents they pay. “Long-term, there could be downward pressure on rental levels, because the total sales from stores may decline for many operators as the balance between stores and the web levels out,” he says.

Most agree that it is too early to tell how online sales will affect high street sales. Yet it is equally clear for retailers in some sectors that the moment of clarity is getting closer. For his own part, Strachan says: “To succeed in today’s retail market, you have to be multichannel and each channel has to complement each other. Chains like New Look realize this and expect online and high street sales to equalize very soon. Online sales have been a big hit for some sectors, but not all.”


The high street’s fashion giants say that online retailing isn’t affecting their store acquisitions policy.

The search for increased turnover is leading retailers to destinations they might not have considered five years ago – and so floorspace is increasing rather than shrinking.

For those fasciae without an online presence, real-world expansion is the only way to increase sales. Earlier this year, Jane Norman opened in Wigan’s Grand Arcade, one of 20 UK openings for this year, including concessions.

For now, customers have to do their shopping in the 113 stores and concessions, but the chain is expected to launch its own web site sales operation soon.

One insider says: “I expect a web site to be up and running before the end of the year. It’s far too early yet to say what impact this will have on our store acquisition plans for 2008.”

Jane Norman is investing modestly in overseas expansion, in markets where internet penetration is less prominent. It will open four overseas stores this year in locations ranging from Amsterdam to the Middle East.

Over at H&M, it has, as yet, no plans to dip its toes into internet sales. By the end of this year, the group will have added just 10 stores to its UK portfolio and another one to its Republic of Ireland list.

“Online retailing isn’t a part of what we do at present though I wouldn’t like to say that it never will be,” says a spokeswoman.

Even more ambitious is New Look. Although still digesting more than 30 ex-Littlewoods stores – now being converted to the New Look format – the expanding chain is expecting to open more than 400,000 sq ft (37, 160 sq m) of new retail floorspace this year.

As yet, there is no online presence to distract from its bricks-and-mortar growth. However, later this year, the retailer plans to launch a transactional web site, which business development and strategy director Shaun Wills says is set to generate sales equal to its flagship store on London’s Oxford Street in its first year.

However, perhaps most interesting is Next. With a well-established catalogue and a large and popular online store, Next ought to be the retailer to show the most obvious signs of the impact of online retailing on real-world store acquisition.

Yet the Next empire continues to expand, in conjunction with its successful online and mail-order business. Next is understood to be planning to open between 60 and 80 new stores.