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Property Special: The changing shape of supermarket fashion retailing

Changes in the big four supermarkets’ property strategies could limit the space for clothing.

The past year has been a torrid one for UK supermarkets, with the big four engaged in a price war and Tesco becoming embroiled in an accounting scandal. In September, Tesco admitted it had overstated its profit forecast for the first half of 2014 by £263m. Two months later the supermarket issued its fourth profit warning in a year, advising that group trading profit for the financial year would not exceed £1.4bn, below the expected £1.8bn to £2.2bn.

The turmoil has led to the major players scaling back the construction of large-format superstores, the only locations with space to accommodate clothing. Tesco, for example, is sacrificing fashion space to open smaller convenience stores in high footfall areas, while Sainsbury’s is looking
to fill excess space in its larger stores with nonfashion concessions.

In February, Tesco said it was cutting 10,000 jobs (6,000 head office positions, 4,000 across its stores) and announced the closure of 43 unprofitable stores this spring. Of these, 11 carry F&F clothing. “Over the last decade all the big supermarkets expanded aggressively wherever and whenever it
was available,” says John Witherell, head of supermarket agency and development at property consultancy CBRE. “This culminated in a 2012 peak of
large grocery stores. Since then the number of grocery stores in the pipeline has fallen, and since the end of 2013 the number of stores under construction has dropped 20%. “Now the dust has settled, it has become clear that many stores are oversized for the location they are in. Tesco has suffered in particular and started a progression of closures that is likely to continue.”

Over the past month the embattled grocer has stalled 49 upcoming store openings and cancelled the construction of three supermarkets, according to construction data resource Glenigan. Based on square footage, these supermarkets were likely to have stocked clothing. The cancellation of large construction projects reflects a move by all the grocers towards convenience stores as consumers shun the big weekly shop. “In 2014 we saw a complete slowdown on the construction of big stores, with grocers focusing on convenience outlets,” says Witherell. “These are not just in town and city centre locations, but main roads, redundant pub sites and petrol filling sites, as well as office locations and university campuses where they can guarantee footfall.”

Downsizing has a serious knock-on effect for supermarket fashion retail. According to CBRE, the optimum net selling space for a supermarket is 60,000 sq ft to 70,000 sq ft, with 40,000 sq ft to 45,000 sq ft devoted to food and 5,000 sq ft to 15,000 sq ft to clothing. Of Tesco’s 2,600 UK stores, more than 900 sell F&F. No convenience stores sell clothing because they don’t have the space, either for stock or clickand- collect orders. A typical Tesco Express store, for example, is 3,000 sq ft, while a ‘midsize’ Tesco Metro averages 20,000 sq ft to 30,000 sq ft. An F&F spokesperson confirmed the grocer would be opening fewer large out-of-town storesand would instead be concentrating on smaller convenience stores in inner-city or suburban locations, which would not directly sell clothing.

Asda has a similar focus on smaller stores, helped by the acquisition of 148 rebranded Netto stores in 2010. George is stocked in 443 of Asda’s 592 UK locations. A further 127 supermarkets carry an essentials offer, including socks and T-shirts. George typically occupies 13,000 sq ft of a 30,000 sq ft Asda Living store (clothing and general merchandise) and 6,000 sq ft of a Supercentre or Superstore. During 2015 Asda will open 17 stores, including three supermarkets in London, most of which will be 20,000 sq ft to 25,000 sq ft. All will sell George, although the offering is unconfirmed. Along with the shift to convenience stores, Asda also plans to revamp eight superstores with a design featuring a George shop-inshop and order points to buy clothing online.

Sainsbury’s opened 25 convenience stores versus four supermarkets during the 14 weeks to January 3. Tu clothing is sold in 420 of Sainsbury’s 600 supermarkets. However, Sainsbury’s director of non-food trading James Brown, also sees significant growth opportunities in driving sales from existing space. “We can grow by introducing clothing into more supermarkets. Around 25% have some spare space - amounting to 6% across the portfolio. We’re planning Tu clothing ranges for about half of that space.” In January, Sainsbury’s announced it will introduce Argos concessions (1,000 sq ft to 5,000 sq ft) in 10 stores, enabling customers to buy more than 20,000 non-grocery products, via tablets in the store, or by reserving online. While Argos is not a direct competitor to Tu, Witherell argues any fashion concessions would need to be niche so as not to challenge the grocer’s value-driven proposition.

Maureen Hinton, global research director at retail research agency Conlumino, agrees that while concessions will have to pay the supermarkets a percentage of their turnover and rent, the introduction of a fashion player could harm the supermarkets’ fashion brands. As space is squeezed in small convenience stores, ecommerce provides an alternative selling platform. However, while F&F and George have established websites, Sainsbury’s Tu is extending online trials to customers in London and the Southeast following its original launch in the Midlands. The plan is to roll out ecommerce nationwide during the first half of 2015. Morrisons is even newer to ecommerce, having only launched online food sales in January 2014, while the Nutmeg range of kidswear is just two years old. Clothing is sold in 257 of Morrisons’ 514 supermarkets, with the intention to reach 290 stores in its financial year to the end of January 2016.

One thing all the supermarkets have in common is the decision to shelve standalone clothing stores, due to cost. Despite operating retail in the Middle East and Singapore, George exited its UK stores in 2008, while Tesco only has standalone F&F stores in the Czech Republic and Poland. While the big four trial ecommerce, seek out concessions and look to downsize, value supermarket chains Aldi and Lidl are gaining ground. Available across its 560 stores, Aldi’s clothing Special buys go on Sale every Thursday and Sunday, only sold in store. Lidl stocks promotion-driven clothing across its 620 UK stores, spanning womenswear, menswear, infants, kidswear and sportswear.

Although the value supermarkets’ growth is undeniable, George managing director Nick Jones believes their proposition is completely different to an established brand. “George has taken 25 years to build into the UK’s second largest clothing retailer by volume. Success doesn’t come overnight.” While it might take the value players a while to catch up in the fashion stakes, the big four cannot take their eyes off the ball. As customer loyalty wavers in the face of accounting scandals, redundancies and store closures, grocers will need to be agile to react to changing demand for fashion.

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