A new report has lambasted the “traditional private equity” model, saying it has no place in the retail sector.
Property consultancy Knight Frank picked out 10 structural failings of the UK retail industry, in its Price of Change report.
Alongside acknowledging the “well-documented issues” facing the sector – such as inflation, business rates and minimum wage increases – Knight Frank said there are “deeper structural flaws undermining” the industry.
The advisory firm said private equity ownership “has a lot to answer for” and pointed out that “it is no coincidence that the vast majority of operators that have launched a company voluntary arrangement or gone into administration are private equity backed”.
It also said other businesses, such as embattled department store chain Debenhams, currently “bear onerous debt from historic private equity ownership”.
Knight Frank said “retailers need to be run as retailers, by retailers, not as cash cows by financiers”.
Oversupply, overexpansion and mismanagement
Other key structural failings picked out by Knight Frank include an oversupply of floorspace, retailers opening too many stores in the past and retailers not being “proactive in weeding out” underperforming stores.
Knight Frank said national vacancy rates are “currently around 12.5%” and, allowing for 5% “churn rates and market tension”, estimated floorspace oversupply in the UK is “around 7%-8%”.
The firm also criticised retailers historically chasing “market share in the short-term”, which “overrode any considerations for longer-term profitability” and for turning a blind eye to the “ugly tail” in ever retailer’s estate portfolio.
While retailers come under fire in much of the report, Knight Frank also blamed the government for taking the sector for granted. In terms of gross value added to the economy, retail accounts for 5% nationally and yet Knight Frank said the sector “receives precious little support form the government in return”.
Head of retail research at Knight Frank Stephen Springham said: “Intervention is desperately needed to right the structural wrongs of the past and solutions need to transcend slashing rents, closing stores and cutting costs, this is merely sticking plasters on much deeper wounds.
“Only by proactively addressing the ten key structural failings will the retail market be able to move forward - and finger pointing between retailers, landlords, central and local government is an impediment to this process, the responsibility must be a collective one.”