You don’t need a ticket to gain extra sales from this year’s Olympic Games but, as Mark Faithfull reports, not all retailers stand to benefit from the events taking place in the UK this summer.
Missed out on a ticket for the wrestling? Not going to the Taekwondo heats after all? Having to watch the canoe sprint at home? Fear not, the huge influx of tourists into the UK should keep your spirits up with the promises of ringing tills this summer. What’s more, stores will be heaving with their own Olympian endeavours, with 30.7 million visitors projected to arrive in the UK this year spending £17.6bn in the process.
But impressive as the figures sound, the Olympic boost will actually maintain visitor numbers at 2011 levels, a fact which VisitBritain’s chief executive Sandie Dawe believes is an achievement in itself against the current economic backdrop. “While these figures are in line with expected numbers in 2011, maintaining current visitor levels would be a good outcome in a year that is proving difficult to predict because of the current global economic climate,” she says. “2012 gives us an unprecedented opportunity to help us get Britain on the destination wish list of first time visitors from growth markets such as Brazil, China, India and Russia.”
Indeed, for retailers the nub of the issue is not so much how many visitors will come but where they will come from. And affluent emerging markets are clearly where the biggest retail opportunity lies for the fashion and luxury sectors. Chinese visitors to the Olympics will be particularly welcome having become an international powerhouse, propelling the global luxury sector and fuelling consumption across key global cities, including New York, Milan, Rome, Paris and, of course, London. These top retail locations are competing hard for their attention and no wonder; the Chinese are prepared to spend a higher proportion than any other group of their holiday outlay on retail and they are motivated buyers thanks to the high tariffs on luxury goods sold in China, a strong Yuan, the appeal of better counterfeit goods control in Europe and a better selection at overseas shops.
“For many Asian visitors a trip may be a once-in-a-lifetime journey to Europe and there is a very strong gifting culture, so they tend to spend heavily and especially on luxury goods,” says Henrik Madsen, managing director UK and Northern Europe for designer outlet specialist McArthurGlen. “Asian visitors have fuelled huge growth in the luxury elements of our top designer outlets and that has encouraged more luxury goods retailers into the outlet centres.”
However, London and the UK do not lead the market for Chinese visitors and ahead of the Olympics, Joseph Wan, chief executive of fashion department store group Harvey Nichols, and Harrods managing director Michael Ward have been among those heading the call to make it easier for Chinese shoppers to come to the UK. Wan has warned that both Paris and Rome are attracting higher numbers of Chinese travellers than London, mainly because of lighter visa restrictions. Spend by Chinese tourists in the UK still jumped by 82% in the year to the end of March 2011, with the average Chinese shopper spending £605 per trip, according to VAT refund specialist Global Blue. But Chinese consumers spent £540m in French stores alone, representing nearly £1,100 per holiday, according to Michael Ouyang, chief executive of the China division of the World Luxury Association.
Justin Taylor, UK chief executive of Cushman & Wakefield retail and leisure, says UK and international retailers have already been doing their best to attract global consumer spend and prepare for the Olympics. “We have already seen a bounce in international retail demand into central London, with brands keen to showcase their offer with flagship stores, particularly on Regent Street and Bond Street and also Oxford Street,” he says. “Tourists have been driving consumer spend in central London anyway and the big spending regions such as China, Russia and Asia will obviously be sending more people over to watch the Olympics, so there will be a commensurate boost in retail sales.”
Jonathan De Mello, senior director of research at consultancy CBRE, adds that there is no doubt the Olympics has already had a major effect, most notably its part as a catalyst in the construction of Westfield Stratford City, which is in the ideal position to gain most from the weeks of competition. “If you look at previous host cities, they have enjoyed a huge city-wide regeneration effect – Barcelona being a classic case in point. There has and will also be a very strong effect across the wider east London region this time round.”
However, London especially will also face transport and delivery restrictions, which will be in place for up to 100 days, with 28 days of competition across the Olympics and Paralympics. Some confusion remains about exactly how those restrictions will impact the retail trade.
“The biggest issue is the pressure on infrastructure that the Games will bring. Getting people around so that stores and restaurants can maximise the opportunity is going to be very tough. London is a micro-economy anyway and will certainly continue to benefit, for the rest of the country the picture is much less clear.”
Indeed, the benefit in the wider UK is far more difficult to determine and many doubt it will be significant for retailers outside the capital. Madsen admits: “The size of the Olympic boost is hard to predict. I think a lot of the people who come over will be very focused on attending the sporting events, not coming with the intention to shop.” But he says McArthurGlen will do as much as it can to and persuade visitors to combine their trip to the Games with some shopping, adding that it anticipates an uplift at its centres with particularly good access to London, such as Ashford, Swindon and York. “We hear hotels are fully booked in York already for the Olympic period,” he says.
Outside of London
Taylor points to the activities taking part away from London, such as sailing at Weymouth and football matches around the country: “Around the UK, the benefits will be felt in those off-site locations, such as Weymouth, which is hosting the sailing, and also at venues where big screens will be put up to relay the events, which could gain spin-off benefits for retailers and restaurants in the area.”
For retailers trying to get into prime London sites ahead of the summer, the prospects are not encouraging. Agents report that even struggling incumbent retailers have refused substantial offers to terminate their leases in London to allow new retailers to take the space, and they predict that few if any units will change hands pre-Olympics.
Despite this, De Mello feels that retailers and brands do have the opportunity to capitalise on the increased Olympic spend but that their tactics, like the competition, may need to be geared around the short term. “What we will undoubtedly see is a lot more pop-up stores, put up in time to capture Olympic spend during the Games,” he says. “Outside the West End, we are likely to see areas which appeal to brands, like Shoreditch, gain.”
Selling the Games: do retailers win?
Profitability and the Olympic Games have a pretty chequered history. The 1972 Munich Olympics lost £178m, the 1976 Montreal Olympics lost a whopping £692m and the 1992 Barcelona Olympics scraped a profit of just £2m.
However, the wider economic impact of the Olympics has produced billions of pounds, with Sydney in 2000 generating an economic benefit of about £3bn of which roughly a quarter was attributed to the retail sector throughout Australia during the Games. About 40% of tourist spending was also in some form of retailing, with only 5% spent on Olympic merchandising. Following the Games, the New South Wales Government found that the Games generated up to £2.4bn worth of international publicity and attracted an additional 1.6 million visitors to Australia the following year, spending over £2bn.
For the 2012 Games, the UK retail market is expected to fare similarly well. During Euro 2004, research from the London Retail Consortium found that the ‘feel good factor’ boosted sales and activity generally in London, in areas such as food, drink, flags, T-shirts and souvenirs. Food and drink sales were boosted by £160m and the retail sector as a whole benefited by an extra £200m – or £80m a week. Visa has estimated the boost this time at £750m, with £700m coming from overseas. However, as much as 72% of retail spend could be confined to London.
The big spenders
The top five nationalities for global tax-free shopping sales (2010)
Source: Global Blue
Beyond London: what benefits will the other venues provide?
There are a number of venues being used outside central London for Olympic and Paralympic events but a breakdown of the activities and locations makes any significant retail uplift limited at best for the local catchments. Aside from the football grounds, which are spread across the country, the other venues are all reachable on day trips from central London and the chief beneficiaries are likely to be tourist-towns used as bases by visitors staying outside London and travelling in.
- Brands Hatch: paralympic road cycling Tunbridge Wells is likely to be the most appealing local town to visit or stay in close to the motor racing circuit but any meaningful retail uplift is unlikely
- Cardiff, Coventry, Glasgow, Manchester, Newcastle: football A number of UK cities, along with the national stadium at Wembley, will host Olympic football matches. Of these, Coventry’s retailers could do with the boost the most, with the other cities already enjoying strong retail sales at their major centres
- Eton Dorney: rowing Windsor will no doubt be the preferred hotel venue for most tourists, while Maidenhead and Reading retailers could both benefit fromoverspill tourism
- Hadleigh Farm, Essex: mountain biking Located to the west of Southend-on-Sea, the mountain biking is likely to have little impact on retail sales but may provide Southend’s beleaguered retailers with a limited uplift. The major shopping centres on the M25 at Lakeside and Bluewater could also benefit marginally
- Lee Valley: white water rafting A stone’s throw from Tesco’s headquarters at Cheshunt, the Lee Valley white water centre is just to the north of the M25 orbital motorway and well away from any major retail centres
- Weymouth:sailing To the east of the south coast seaside town of Weymouth, both Poole and Bournemouth are likely to house many of the visitors to the sailing, who do not make attendance part of a day trip. Both cities have a strong central retail offer plus significant out-of-town centres