It is no secret that customer shopping behaviour is fundamentally changing, and at a rapid pace.
People are heading to the shops less frequently and doing more of their shopping online, and the result is that some retailers are finding themselves with too much space on their hands.
But when customers do venture outside, their expectations for a physical store experience are becoming ever greater. The pressure is on to provide something different, relevant and engaging to better utilise the shop floor.
There are a number of live examples of retailers attempting to increase performance across their estate by taking proactive steps to release space.
These have involved other retailers and perceived complementary propositions, with the objective to generate additional footfall and make their own residual footprints more efficient.
While this approach makes sense, in our view, many operators are not getting it right in practice.
Picking your partners
Certainly, in the case of House of Fraser, who have attempted this exercise, it has not meant respite from the long-rumoured and now confirmed CVA.
However, an interesting example is the reported collaboration between WeWork and Debenhams. WeWork is enjoying rapid growth, and securing space in the Debenhams Oxford Street flagship would be advantageous due to its prime location.
“The key to success for retailers will be absolute clarity about who their own customers are, and who the customers of a potential tenant or partner are”
It is not clear, however, whether any potential increase in employees will drive any incremental sales for the department stores involved, and if there is a complementary overlap between the Debenhams customer and the WeWork customer that could drive footfall into the store and vice versa.
The key to success in this area for retailers will be absolute clarity about who their own customers are, and who the customers of a potential tenant or partner are.
And while this is a good starting point, it will also be important to have a deep understanding of how each party’s respective customers live, work and play to fully understand where these partnerships can drive significant synergies.
These partnerships – even when formed on a purely ‘real estate’ basis – are helpful in many instances. They increase the productivity of retail space by effectively initiating a ‘downsize’, but the issue of excessive, non-productive space is so serious for many retailers that more drastic measures will need to be taken.
No silver bullet
The recent increase in CVA processes in the sector should sound major alarm bells for ‘retailers-turned-landlords’ who still hold the liability for the head lease if their ‘sub-letee’ ends up in a CVA.
Of course, there is no silver bullet, but the large-scale redistribution and transformation of retail space will inevitably be a part of the answer over the coming years.
For a long time, the combination of great talent, instinct and inspiration has paved the way for many retail success stories and meteoric careers. However, what’s worked before is not necessarily a pointer to what will work in the future.
That’s true for one’s own business, and the quest for successful partnerships adds a new layer of complexity and risk.
The key is having access to great customer data, an operating model that puts the customer at its heart, and leadership to ensure that the data is used to enable decision-making for both partners.
In many respects, similar intelligence and leadership is required by city and town planners who are seeking to transform the British high street.
Their challenge is, if anything, greater because of the timescales over which they must plan and the demographic, infrastructural and economic changes they have to anticipate.
But the key to solving this conundrum for retailers and planners alike lies in a deeper understanding of the prospective partners who could make use of their space, rather than shorter-term opportunities in the real estate market.