While it may not be the full-line department store some claimed, Tesco’s plans to anchor shopping centres have sent shivers down rivals’ spines. Ben Cooper gets to the bottom of the story

Reports last month that Tesco plans to open a chain of department stores unsurprisingly caused a stir. But, while the real story might not be quite as exciting as was suggested, there’s no doubt that its intention to open 100,000 sq ft (9,290 sq m) stores in city centres is a significant move in the gradual diversification of the retail giant’s formats.

In reality, rather than taking on Debenhams and House of Fraser, the grocer’s plan – circulated to property agents last month – is to create large Tescos in town and city centre locations, which would include anchoring shopping centres.

The logic is obvious. 100,000 sq ft sites on one level don’t grow on trees in town centre locations, so Tesco is taking a more flexible approach. It is signalling its intention to take multi-floor stores in more constrained sites in city centres and shoehorning in the range of goods that it would offer in one of its giant out-of-town Tesco Extra stores.

The concept had an early setback when, last week, the retail giant lost out to Waitrose for a Hammersmith site, where it had planned to open a multi-storey unit to kick-start the new venture. Despite this blip, Tesco’s move into in-town, multi-level stores will doubtless progress. The question is, what will this mean for its rivals and developers?

In a brochure sent to agents, Tesco describes its latest store plans as a “whole new concept”. The move represents a shift in Tesco’s property strategy. Following the Government’s drive to get retailers into town centres, Tesco faces huge challenge securing new sites in heavily populated areas.

The new stores will be between 90,000 and 150,000 sq ft (8,360 and 13,935 sq m), providing a minimum of 60,000 sq ft (5,575 sq m) of sales space over two or even three floors. It is envisaged that they will contain Tesco’s full retail offer. This means that, on top of food, the stores will sell everything from clothing to electricals and jewellery to mobile phones and CDs. And, while this is nothing new, this breadth of range has been more common out of town, where Tesco Extra stores have usually been located.

Having developments over multiple floors is a logistical necessity, according to Tesco, if there is to be enough space for the range that it wants to offer in town centres. In doing so, it has caused a flurry of speculation that it is planning to go head to head with Debenhams and other department store retailers. But a Tesco spokesman refutes this. He says: “The whole thing has got a bit out of context. The idea was to see what take-up there might be.”

Despite the clear shift in thinking in terms of property strategy, the offer will be no different from that of existing stores, according to the Tesco spokesman. He explains: “It’s an existing formation packaged in a different way. It would be pretty similar to our Tesco Extra stores except it would be over two or three storeys.” The stores would not have many of the distinctive features of department stores, for example, cosmetics counters on the ground floor.

Tesco is keeping tight-lipped about the scale of its town centre ambitions, preferring to assess the mood from developers and local authorities.

And while it is keen to avoid the description “department store”, to other retailers, the threat still very real. Semantics aside, Britain’s biggest retailer is about to get bigger and, for in-town department stores, the danger will soon be a little closer to home.

CAT AMONG THE PIGEONS

The arrival of Tesco as an option to anchor shopping centres marks a sea change in retail property development. Traditionally John Lewis, Debenhams, House of Fraser and Marks & Spencer have been anchors of choice in schemes with a non-food- and – with the exception of John Lewis – fashion-led offer.

While Tesco maintains that it is not offering anything extra in terms of products, the strategy has changed on two key levels. The new stores will bring the out-of-town offering – including the entire non-food offer – to town centres and place them in multi-level buildings for the first time.

Retailers will be wary of the new kid on the block – particularly because of the enormous success it has had in diversifying its range. Tesco’s ability to undercut rivals has become even more consequential since it branched out into non-food retail. Books, CDs, DVDs and electricals retailers have found themselves being increasingly squeezed by Tesco and struggle to match supermarket prices.

Tesco is upfront about its intentions to introduce the new-concept stores to anchor future in-town shopping centres. This would have an even greater effect on the retail landscape of a town or city and challenge a well-established protocol for tenant mix based on the options open to developers and landlords.

While it would never replace the likes of John Lewis in the most attractive city centre locations, leading landlords have welcomed the option of a new anchor tenant. “We’ve had a long-established relationship with Tesco and, if you look at the quality it brings, we would be very happy to bring it in to one of our centres. It is a great driver of footfall,” says Land Securities head of retail development Peter Cleary.

But not everyone is so enthusiastic. Upmarket anchors like John Lewis set the tone for a centre and drive footfall from affluent shoppers. And some landlords fear that having Tesco anchor a site might deter other retailers from taking space, because it would hoover up the demand for non-food goods and dissuade shoppers from exploring the other stores in the centre. “I don’t see it myself,” says one leading developer. “I wouldn’t imagine other tenants being too excited about a centre anchored by Tesco.”

Tesco can point to its experience of developing similar stores in Korea, from where it has drawn the blueprint for its new city centre concept. But Korea and the UK are very different markets, so it does not necessarily follow that shopping centre developers will be excited by Tesco’s plans.

But the UK’s biggest retailer rarely fails in new initiatives. And, while it may not be the giant new department store format some had feared, that won’t stop Tesco’s competitors being afraid.

HAMMERSMITH LET-DOWN

Waitrose beating Tesco to the King Street development in Hammersmith was a blow to Tesco, which had big plans for the site. Designated as the launch pad for a new store concept, the development would have brought the full spectrum of Tesco’s retail offer to Hammersmith.

The decision to give the site to Waitrose was based on value for money, quality and deliverability, according to a Hammersmith & Fulham council statement. The bid from developers Grainger Trust and Helical Bar, which was based on a 28,000 sq ft (2,600 sq m) Waitrose, was deemed to offer the most in terms of value and appearance.

Hammersmith and Fulham council cabinet member for strategy Mark Loveday says: “Our experts, who have spent months analysing complex data, believe that the Grainger/Helical Bar scheme is the best economically and aesthetically. After months of detailed analysis, the proposals from Grainger/Helical Bar were clearly the outstanding choice.”

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