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Property special: Store portfolios

Retailers are sizing up their property requirements in response to soaring online sales, but is the future less about cutting
stores and more about repositioning them?

How many fashion stores do the chain operators really need? In an era of austerity and omnichannel retail, it has become a crunch question and there is no shortage of commentators willing to stress that the UK is over-shopped, or to advocate the case for the traditional store.

Among those with conflicted views are the retailers themselves, with consultancy Javelin Group’s survey of retail chief executives, How Many Stores Will We Really Need?, suggesting that total retail space could fall by more than a fifth by 2020, and that store numbers will decline even more dramatically. Robin Bevan, director of locations and analytics at Javelin Group, stresses that such startling figures are “on the conservative side” of estimates and that retailer sentiment from its research suggests that store reduction could be greater still.

According to Javelin’s estimates, by 2017 about 28% of non-food sales will be online - fulfilled by home delivery or click-and-collect - increasing by about two-and-a-half times over a decade. Yet total sales across all channels are anticipated to be static over the same period, meaning this growth is at the expense of other channels.

In such a scenario polarisation is the key determinant - prime malls, retail parks, high streets and dominant centres of all descriptions thrive, while most of the secondary and pretty much all of the tertiary retail space is consigned to history. But is it really as simple and stark as that?

“The change in view as to how many stores a retailer needs depends dramatically on whether it is a retailer already in the UK with a legacy portfolio or a new entrant,” says Tony Devlin, head of UK retail at CBRE.

“There are lots of factors that have affected the view of how many stores a retailer needs - such as rapid growth in car ownership, out-of-town developments, the internet and the longest running downturn we have seen in a generation.”

“And this recession has caused structural damage to the retail market that has accelerated the decline of high streets. And underlining everything is the long-running migration of chain operations - such as Topshop - from smaller markets to larger markets where they can achieve greater coverage with the addition of an ecommerce platform.”

Yet for all the gloomy predictions of store demise, there is plenty of evidence that fashion retailers remain on the hunt for new locations and those that are downsizing or realigning their portfolios are generally sorting out legacy issues rather than preparing for a hugely thinned-down store future.

Devlin adds that some stores - such as discount retail chains - are less affected by ecommerce and still require large portfolios.

Fast-fashion retailer New Look is a case in point. While it is looking to trim its circa 590-store portfolio, this will only be by about 20 stores. And the retailer has frequently intimated that, while it foresees that it may operate from fewer stores in future, the total footprint is likely to remain static or even increase. In other words, New Look will operate from a smaller base of larger stores.

As part of this repositioning, New Look is to introduce concessions such as nail bars into some of its stores to increase shoppers’ dwell time and it has already tested these in a small number of stores that have “performed well”, according to chief financial officer Alastair Miller, who says New Look is looking to continue this on a “broader scale”.

While in its most recent quarterly results online was the star performer, surging an impressive 78.7%, click-and-collect, which it introduced last year, has also continued to thrive with 25% of all online orders fulfilled using this delivery option.

As a consequence, New Look plans to continue its refurbishment programme - in which many of its stores will be upgraded with a click-and-collect service - and will revamp another 100 stores this year, with those stores already upgraded experiencing an average 9.3% uplift in profits.

A retailer with an even greater legacy portfolio is Sir Philip Green’s Arcadia Group. His team has been working over recent years to trim down the raft of stores that were opened during its massive expansion programme in the mid-1980s. Arcadia still has in the region of 2,400 UK outlets totalling more than 9.5 million sq ft of selling space, and too much of this space remains on smaller high streets and in smaller stores.

Arcadia has gradually reshaped its portfolio around prime locations and larger store formats, often looking to shopping centre sites where it can co-locate its main retail fascias. This provides the flexibility to rejig adjacent stores if necessary to up or downsize brands as appropriate. For his part Green - who remains an advocate of stores - has reflected that if he was starting the business today “it would probably be as an online retailer with a few key flagship stores”.

He has demonstrated as much in his approach to the US market, where the flagship Topshop brand has been introduced through a select number of large flagship stores in major US cities such as New York, Chicago and Los Angeles. Topshop is also available for online delivery across the world.

Another to capitalise on its growing national and global status is Cath Kidston, which opened a 7,000 sq ft flagship on Piccadilly late last year.

The womenswear and homeware retailer has established some 68 UK stores and 143 stores internationally. Chief executive Kenny Wilson is quick to point to the new flagship’s “iconic location” close to Piccadilly Circus. The flagship is about four times the size of the average Cath Kidston and Wilson says: “This store really acts as a beacon for the whole of the UK and also our international business.”

This dedication to the role of its stores and an increasing focus on Asia comes at a time when Cath Kidston is developing its ecommerce arm, and serves to underline that the rise of omnichannel has not necessarily derailed store growth plans for a multitude of retailers.

The latest CBRE survey of retailer intentions across Europe also indicates that more retailers want to expand their portfolios this year than last. And those with plans to add 40 or more stores is up by more than a third on last year.

Indeed, both John Lewis and Next have been among the most active in multichannel development, reported strong Christmas sales and have been among the most innovative in terms of flexing their real estate.

Next was a trailblazer in moving to retail parks, often anchoring their metamorphosis from bulk goods locations into fashion parks, and has used larger formats to both reduce rental costs per square foot and to showcase both its fashion and homeware offers in one location.

By contrast, when John Lewis’s rapid growth plan was stymied by the stalling in new shopping centre developments it was supposed to be anchoring with full-line department stores, it opted to open standalone furniture and homeware stores.

Last year, it opened smaller-format department stores in Exeter and York, which are supported by greater in-store technology and click-and-collect in order to expand the offer beyond what is physically held in store.

“Click-and-collect is by far the biggest driver for growth in existing stores,” says CBRE’s Devlin.

John Lewis managing director Andy Street wants to operate from 65 stores by 2023, up from the 40 it trades from at present.

Street said of the booming holiday season: “With new highs in branches, as well as for Johnlewis.com, this was a genuine omnichannel Christmas.”

Next and John Lewis support the contention that those with a rigorous approach to all channels are thriving at the expense of those that do not. This suggests that the issue is not so much about store performance but rather about joining up the channels so that all are performing effectively.

That said, it’s worth remembering that one of the strongest brands on the UK high street remains - a brief flirtation with pure-player Asos aside - resolutely a bricks-and-mortar operator. Primark is planning to add 500,000 sq ft of selling space this financial year, including opening in three suburban shopping centres in Paris as it ramps up European expansion.

Primark intends to open larger city centre stores - where its stores are achieving the strongest sales densities - and John Bason, finance director of its owner Associated British Foods, says in large cities such as Newcastle, Manchester and Birmingham, its ideal store size is now a significant 100,000 sq ft, and in smaller towns such as Cambridge, about 50,000 sq ft.

However, Devlin says the factors influencing portfolio requirements are not limited to the UK. He says: “The way retailers look at markets now is very different to how they looked at them 10 to 15 years ago, when they considered them on an individual basis.”

“Its no longer UK-centric, they look at what each market is delivering in comparison to one another. So there is a real change happening in the market.”

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