News that Dutch furniture retailers Seats & Sofas is preparing to make its UK debut seemed surprising to many observers.
After all, with big-ticket retailers among the hardest hit by the downturn, it is a brave furniture business that takes on the UK market.
But from a property perspective, interest from overseas players is understandable. The high number of out-of-town voids arising as recessionary trading conditions hit retailers where they hurt has thrown the sector wide open. Landlords want new tenants and opportunities have therefore arisen for market entrants, and great deals are on offer.
It is not just the availability of space that appeals to foreign store groups. Competition among big-ticket players has abated to a certain extent as a result of capacity withdrawal as weaker retailers, such as MFI, have collapsed.
Cushman & Wakefield out-of-town partner Martin Supple says: “We’re putting the case to international retailers and they are revising and revisiting their attitudes because of what’s happened in the UK over the past two years. One of the big barriers at entry point has changed.” As well as Seats & Sofas, Best Buy is still preparing to launch, German kitchen retailer Kutchen Haus is looking to expand and Irish brand Smyths Toys is understood to be planning to ramp up its presence.
Of course, the UK is not the only country with serious economic problems. The same woes that have hit out-of-town retail here have also been felt throughout Europe and further afield.
That means that despite the opportunity for market entry, there are still only a relatively small number of retailers in a strong enough position to launch a store in the UK.
Taking the plunge
So will Seats & Sofas be the first of several, or will most foreign retailers be unable to make the leap? One new retailer does not count as a flood of arrivals, but many agents are busily taking enquiries from international retailers with an eye on the UK.
Talks don’t always lead to signings, but the fact that the number of overseas retailers approaching agents with store requirements has significantly increased this year is evidence of genuine interest.
And with space to fill and no sign of a real recovery, the terms of deals landlords are now offering have softened considerably.
DTZ director of out-of-town Patrick Heaps explains: “The deals retailers can do on some parks have changed so the occupational costs have become more palatable. I think landlords are entirely open to a discussion with an international retailer on terms.”
The UK’s out-of-town market has been among the most mature and competitive in the world and rent levels rose to reflect that. For many international retailers, the fact that occupational costs were so high compared with other continental European markets was enough to put them off the UK altogether.
But now that these have begun to fall, the balance of power is shifting. A retailer looking for space in today’s market is much more able to call the shots at the negotiating table and the savvy foreign player with good advice on the UK market can take full advantage.
While there are not necessarily overseas retailers queuing up on the other side of the English Channel, many are now seriously revisiting previous retail park enquiries.
While agents are reluctant to reveal who they’re courting, they say that enquiries have come from retailers in sectors including bulky goods, toys, furniture and electricals.
Edgerley Simpson Howe associate Jason Holden says: “We’ve always courted external enquiries both from the high street and overseas. But there’s been a massive influx and I don’t see that changing.”
But while all of this is true, a retailer must have a strong balance sheet to consider a move into this country. There are still considerable costs and a high element of risk involved. Occupational costs may have fallen but they still remain relatively high compared with other European markets and cash is a vital prerequisite for a move.
Negotiations can be tricky, especially for a retailer that is unfamiliar with the territory – rates and service charges need to be taken into account and fit-out costs still need to be borne in mind.
It is a simple equation: the more stores a retailer is looking to open in one go, the more expensive the move will be. So while the climate is favourable in many ways, given the serious problems in European retail, it is still unlikely that any retailer will have the clout to take on a considerable chunk of shops in one fell swoop.
Holden explains: “Europe is in as bad a state, if not worse than the UK. I can see start-up businesses coming in, but not necessarily that many arrivals from overseas. It’s a very difficult market to start up in.”
This does not mean there are not opportunities for retailers that have done their homework and have cash to spend, but what most believe will happen is a considered and gradual arrival.
“Moving into another country is a big commitment,” says Supple. “It’s looking a lot more open than it was – although that doesn’t mean we’ll get a wave. But there are particular gaps in which a well-positioned continental retailer with a good business model can do it.”
You need to look no further than Best Buy to see how this is materialising. The arrival of the US electricals giant has been the subject of much discussion among retailers, landlords and agents for many months now. While Best Buy insists it will eventually open its doors in the UK, its arrival has been a slow process.
Talk that the retailer had all but signed for its first store appears to have been premature, following the announcement that it was putting its opening plans on hold until 2010.
That is even more surprising considering that Best Buy is in a stronger position than most when it comes to entering the UK. With a solid balance sheet and a top UK partner, it is to all intents and purposes perfectly poised to make its entry. But caution has won the day – for now.
At the time of the announcement Best Buy finance director Roger Taylor said: “If it makes more commercial sense to open three or four months later, that is what we will do. Because of the economic climate it is more sensible to wait for better sites. The quality of the sites is getting better – not just the locations, but also the economics,” he added.
So in any talk about international retailers coming over to the UK Best Buy’s example should be considered. If this US brand, with all its strengths, is stuttering on the starting line, then it is unlikely that others will find the going smooth.
The retail parks market is bound to have some new players in two years’ time and a good number of them may well be international. But their arrival seems much more likely to come in a trickle than a flood if Best Buy is anything to go by.