When Sir Stuart Rose talks, people tend to listen. So when he said last month that he thought out-of-town retail parks were suffering because of the rising cost of fuel, it caused quite a stir.
Fuel costs have been barely out of the headlines for months and Rose’s comments – which he repeated this week – confirmed that link between dramatic increases in prices at the pump and the more precarious position of destination retail centres.
An ICM poll conducted for Retail Week published last week revealed that more than a quarter of car owners are shopping more locally to cut back on fuel costs. This makes sense given that, unlike mortgages and some other rising household expenses that are hitting consumers, fuel use is one cost that people have a degree of control over.
Brookfield Developments director of retail development Tim Buckley says: “Everybody is looking very carefully at the car parked on their drive and thinking ‘Do I really need to use that today?’. Out-of-town is bound to feel the breeze as a result. People will start to choose to go 2 miles as opposed to 10 where they can.”
Figures published this week by Experian are the clearest sign yet that the out-of-town has been hit. In its June Retail Footfall Index, it revealed that out-of-town destinations have experienced a 5.8 per cent decline in shoppers, compared with a 1.5 per cent fall for town centres.
But the picture is not simple. Fuel is not the only commodity to be burning a hole in consumers’ pockets at the moment and, while it seems obvious that shoppers will try to keep their mileage down, out-of-town centres are often a more convenient and cost-effective option than shopping in a town centre because of, for example, free parking.
The key for an out-of-town centre, according to King Sturge partner Mark Rudman, is quality of offering and a solid location. Provided these boxes are ticked, he says, there is still good demand. “Out-of-town has proved to be more profitable to retailers in the past, because operating costs are lower. It’s quite possible that people will go to town centres more, but there’s a balance in the way people do their shopping between in-town, out-of-town and the internet,” he says. “The balance might change, but it’s not going to alter too much. The places that won’t do as well are the ones that are weak anyway.”
And while shoppers will usually have a shorter journey to a town centre, out-of-town schemes are often easier to get to, less congested and invariably have free parking. Because of this, out-of-town shopping could prove cheaper in some cases and might end up being a more appealing destination than the nearest town centre.
And there are some centres that are proving their robustness. While not all its tenants are feeling chipper, Lend Lease’s Bluewater, which is reliant mostly on its shoppers coming by car, claimed like-for-like footfall growth of 7.9 per cent for the year to May. Its success is testament to the fact that fuel prices are not shoppers’ only consideration in where they choose to shop. With so many shops under one roof and with 13,000 free parking spaces, Bluewater is extremely convenient for shoppers. What’s more, it is geared towards keeping shoppers inside once they have arrived.
Bluewater managing director Andrew Parkinson believes these factors are key to the centre’s resilience against rising prices at the pumps. “Footfall at Bluewater has continued to rise and I think it’s because, if you’re coming to shop, you want it all under one roof, as opposed to a town centre, where you might have to go here and there. It’s about the experience now,” he says. “And, the fact is, there aren’t that many people who can walk into their town centre anyway – if they have to drive, it’s better to be able to park for free.”
Lend Lease estimates that the ratio of shoppers coming to Bluewater by car versus those coming by public transport – about four fifths to a fifth – has remained unchanged over the past year, suggesting there hasn’t been a drop-off in shoppers coming by car.
“You can go to a regional centre to have a day out as well as a shopping trip,” says Rudman. “I’m not sure if the rising fuel costs are affecting out-of-town centres more than anything else and, for some people, they might use more fuel driving into the town centre and be less environmentally friendly – and you have to pay for parking.”
And rising fuel prices is not the only reason why consumers are feeling the pinch. There is a complex combination of factors at work that are causing shoppers to cut back on unnecessary spending and are hitting retail as a whole – not just the out-of-town market.
Take the credit crunch. Homeowners will have watched in horror as mortgage bills crept up in the past 12 months and some have suffered as much as a 50 per cent increase in their mortgage repayments. Mike Gilbert, director at retail property adviser Hammond Phillips, says: “I don’t think rising fuel prices is the only factor. There’s just fewer pounds in people’s pockets and that’s going to affect retail in general.”
So while fuel costs are clearly becoming a heavier burden, there has been little evidence so far of a direct link between that and falling out-of-town sales. This was also the conclusion of a recent RW Online poll, where only 27 per cent of respondents made this link.
One factor that will always support out-of-town shopping is its convenience. A family with mouths to feed will always need to buy groceries and clothing on a large scale and out-of-town centres often offer an easier way of doing this than a town centre. For these types of shoppers, using the car is a fact of life.
Tony Rose, director at commercial property consultant Reid Rose Gregory, says: “Major out-of-town parks and shopping centres have a critical mass, offering the shopper the opportunity for a one-stop shop. The benefit of free car parking will probably more than offset the increased fuel costs.
“Furthermore, the convenience of surface car parking is much more attractive and the more immediate proximity to the stores makes it easier for shoppers to load cars with purchases.”
However, the out-of-town transport debate is not that easily dispensed with. It also ties in with another agenda that is building momentum – sustainability. Costs may be rising, but shopping is still a crucial part of everyday life and, with the environment rising up the agenda for the retail industry, many developers have had to put in place alternative transport initiatives for their out-of-town schemes. With the added impetus of fuel-price increases, such initiatives are likely to become even more important in the coming months.
Hammerson, for example, has introduced its Green Travel Plan at Brent Cross and all of its pipeline schemes, with all of its existing schemes due to have a plan in place by September. It includes initiatives such as space for employees and customers to leave bicycles, improved public transport, greater access to information such as bus timetables and car-sharing schemes for customers.
Hammerson head of sustainability Paul Edwards says: “It’s about making public transport easier. A lot of people will change their habits if the options are there. We’ve got to be realistic – fuel cost is a big issue. It’s the main driver for people questioning their habits and they’re reviewing alternatives.
But another alternative eliminates the need to travel altogether. Internet retailing has seen a steady growth in sales and, according to this week’s Experian report, has risen 6.5 per cent year on year – although Rose also warned this week that consumers may become less willing to pay delivery charges as the credit crunch bites.
Whichever way they turn, consumers have an enormous bill in front of them. Inevitably, when times are hard, people re-evaluate their spending habits and there will be some cutbacks in longer shopping trips made by car.
If Sir Stuart Rose’s comments are on the money – and with no sign of fuel prices coming down in the near future – out-of-town shopping centre developers may have to take decisive action to keep shoppers getting in their cars. But if they get it right, it looks like these schemes still have plenty going for them.
Fuelling price hikes
The world’s oil-producing regions are some of the most volatile and precarious. One of the effects of a prolonged and devastating seven years of instability in the Middle East has been steady and unprecedented growth in prices at the pumps. At the beginning of January this year, oil reached US$100 (£50.15) a barrel – the highest figure in history – and has since then leapt to in excess of US$140 (£70.21).
The effects of these hikes for consumers have been dramatic. In the UK, motorists are collectively spending£14.3 million extra a day on petrol than this time last year – unleaded fuel has risen 22 per cent. This has started to translate into fewer car trips, particularly longer journeys.