This year started with one of the biggest corporate surprises in recent memory – Tesco’s £3.7bn acquisition of wholesale giant Booker.
And, with just weeks left of 2017, a similar feeling of shock reverberated across the industry today. Shopping centre owner Hammerson revealed it has agreed to acquire rival Intu in a deal valuing the latter at £3.4bn.
In a statement to the Stock Exchange this morning, Hammerson said there was “compelling strategic rationale” for the deal, which would bring together the “high-quality retail property portfolios” and the “combined expertise” of the two businesses.
Hammerson added that the enlarged company would be able to better respond to “fast-changing consumer preferences and retail trends” across its £21bn pan-European portfolio.
The amalgamation of Hammerson’s impressive portfolio – spearheaded by Brent Cross, the Bullring, Grand Central Birmingham and Victoria Gate, in Leeds – with Intu centres including Lakeside, Metrocentre and Trafford Centre, would give the business a stake in 12 of the UK’s 20 biggest shopping centres.
Hammerson boss David Atkins, who will head the enlarged business, believes that dominance will leave it “better positioned to serve the needs of our retailers”.
Cushman & Wakefield head of EMEA retail Justin Taylor agrees.
“The combined business going forward will focus on the best locations, so it’s the sort of merger that the market has anticipated with eagerness for a long time,” he tells Retail Week.
“From a customer point of view, you will get a consistency of brand across destinations, which Intu has already started to build.
“And as a retailer, if you’re looking for a UK platform, it is very efficient to talk to one owner who can deliver whatever you want – 10, 20, 30 of the best locations in the country – and continue to have a managed conversation with one person in a very efficient way.”
Harper Dennis Hobbs head of retail consultancy Jonathan De Mello believes the focus both businesses have placed on technology in recent years should also serve as a positive sign for retailers.
“Hammerson can invest better in their shopping centres’ websites and potentially make them transactional, like Intu has already done”
Jonathan De Mello, Harper Dennis Hobbs
Hammerson has ploughed cash into a visual search smartphone app for shoppers to use in its malls, while Intu has launched a standalone transactional website pooling together the retailers that trade in its centres, to name just two of their digital initiatives.
“Hammerson can invest better in their shopping centres’ websites and potentially make them transactional like Intu has already done,” De Mello suggests.
“They are platforms that give retailers extra exposure, across channels, which they like, and allows them to trade across multiple channels, both online and in-store, through a partnership with one landlord.”
De Mello says this could have other benefits, such as “de-risking the opening opportunity” for retailers, since it could allow them to see how they trade through one or two stores from a wider selection of centres and through the online platform first, before considering further openings.
A sense of trepidation
Despite the upsides Taylor and De Mello highlight, there remains a degree of trepidation among retailers that Retail Week spoke to.
The monopoly position that Hammerson and Intu appear to be forging in the UK shopping centre scene has filled some with dread.
With Westfield and Hammerson also working together on a £1.4bn joint venture in Croydon, one retail property director tells Retail Week he harbours “a real concern” that major regional shopping centres could eventually end up under single ownership.
“The fear is that they will try to push on rents and service charges even more at a time when retailers are looking to pay less”
“If they end up owning most of the big regional shopping centres in the country, then there is a problem,” he says.
“If you’ve only got one person you’re dealing with, and you fall out with them for whatever reason, it becomes incredibly difficult for the retailer.
“And the fact is that, if they create a monopoly, they can demand what they want in terms of rent and service charges.”
Indeed, a small number of retailers suggest they could even make formal objections on the basis that they fear a monopoly is being formed.
A director at one commercial property firm understands why they feel such action could be necessary.
“The fear is that they will try to push on rents and service charges even more at a time when retailers are looking to pay less,” he explains.
“The concern is that landlords are getting bigger and they are getting stronger. The more of a monopoly they have, the more difficult it becomes for retailers.”
Another retail property expert adds: “The trouble is that it creates more uncertainty. We don’t know how this will affect the Croydon joint venture between Westfield and Hammerson, for example.
“Which assets will they sell off and what impact will that have on retailers who are already suffering quite a bit at the moment?
“It’s more uncertainty when there is already so much uncertainty out there.”
For Taylor, one thing is certain.
“As far as retailers are concerned, it will continue to be about being in the best locations,” he insists.
“But it’s the classic situation with any merger – two plus two needs to equal more than five. They have to deliver added value in terms of the customer experience, but also in terms of the service it provides to its other customers – retail occupiers.”
In times of great uncertainty, retailers will be hoping Hammerson and Intu can deliver on that particular promise.