The declining popularity of local high streets, the rise of etail and the lure of international expansion is forcing retailers to reconsider their bricks-and-mortar strategies in the UK.
Rising numbers of empty shops and a swathe of high-profile administrations this year provide stark evidence of the changing face of the UK high street.
Shifts in consumer shopping habits, the growth of ecommerce and the potential for expansion abroad, set against a backdrop of sluggish economic recovery, have led many multiple retailers to rethink their bricks-and-mortar strategies for the UK in order to remain profitable.
Multiple retailers closed 20 stores a day on average across the UK between January and the end of May this year, with fashion and footwear shops among the hardest hit, according to research carried out by Local Data Company (LDC) on behalf of PricewaterhouseCoopers (PwC). LDC reports that the national vacancy rate stands at 14.5%, with a total of 4,500 store closures this year as retailers look to exit less popular shopping destinations.
Russell Francis, director, head of valuation at property consultancy Colliers International, says: “What we’ve seen is a retrenchment by key retailers out of secondary locations, because consumers don’t feel they need to go shopping there any more. Instead there has been a focus on the stronger regional city and shopping centre locations.”
The financial crisis has no doubt played a major role in the 9% year-on-year rise in insolvencies in the second quarter of this year reported by PwC, and the increased number of CVAs as multiples attempt to secure their futures by ditching their worst-performing stores. However, increased vacancy rates on smaller high streets are part of an established trend.
Shoppers have been drifting away from their local high streets due to the lack of free parking, poor transport links, lack of policing, less inviting environment and a disappointing retail mix. Out-of-town retail parks and shopping centres have the benefit of a single landlord that manages all of these issues, whereas on high streets property is run by different owners, making it difficult to deal with these issues.
John Strachan, global head of retail at real estate consultancy Cushman & Wakefield, says high streets need to find their own USP and improve their look and feel to claw back shoppers. “The most successful shopping destinations have the group of retailers we all want to shop at – leading department stores, multiple fashion retailers and newer brands. If secondary centres don’t have these key retailers then they need another raison d’être,” he says.
Mike Shearwood, chief executive of Aurora Fashions, which owns the Oasis, Coast and Warehouse womenswear chains, believes retail is set to change significantly. “In the next 10 years I think you’ll see 30% less shops on the high street and a consolidation into out-of-town shopping centres, retail parks and regional malls, with a focus on larger units,” he says.
Home or away
Retailers are now looking overseas for expansion, shifting their focus from the UK. “The UK market is highly competitive and retailers are recognising it could be oversaturated and that there is potential for international expansion,” says Peter Gold, executive director and head of cross border retail EMEA at property firm CB Richard Ellis.
Aurora Fashions is focusing its UK bricks-and-mortar strategy on key locations and is seeking to reduce its overall store portfolio by reviewing all of its leases when they come up for renewal. “If you have fewer stores it doesn’t mean you sell less. I believe you can sell more and make those sales more profitable. It’s about having the right stores in the right locations,” says Shearwood.
Instead the company has set its sights on global expansion and will launch its first foreign language website this autumn in Germany, its largest European market outside the UK, and will open eight stores in Latin America this autumn in Colombia, Peru, Mexico and Chile, and in Argentina next year.
Womenswear chain Karen Millen is also focused on international, which now accounts for about half of its £250m annual turnover. “Bricks-and-mortar is a key part of our strategy and we will continue to look for the best locations, but there won’t be significant growth in the UK [in terms of volume of stores]. We’re well represented across the country and believe we can grow market share with the locations we are already in,” says Steve Price, joint managing director of Karen Millen.
Marks & Spencer is aiming to increase its international sales by between £300m to £500m by 2013/14, from £968.7m in 2009/10, by building on its position in priority countries, launching websites specific to local markets from 2013, and by returning to France with its first international transactional website and a flagship store on the Champs-Elysées in Paris this autumn.
However, despite its international plans, Marks & Spencer is still focused on bricks-and-mortar in the UK and has set itself a target for 95% of the population to be within a 30-minute drive of a full-line store by 2015. It has stepped up its pace of growth, aiming to increase its estate – it currently has about 600 – by 3% a year and will continue this through to 2015/16. The new store developments will be a mix of shopping centre and out-of-town formats.
“Our strategy is clear. We’ve said we will strengthen our UK business over the next three years – including opening new stores – while at the same time building our multichannel and international capability. This will develop M&S into an international, multichannel retailer,” says Clem Constantine, the retailer’s property director.
Department store chain John Lewis is also upping its bricks-and-mortar presence in the UK and has a raft of new openings planned for this year and next, including an anchor store at the new Westfield Stratford development and its first Flexible Format store, a bespoke format tailored to the local area, in Exeter.
John Lewis says it has identified 10 further locations that could support the new-format stores. “There has been a realisation that our existing stores are the business’s foundation, but that we can sustain a greater number of shops to meet customers’ needs,” says John Lewis property director Jeremy Collins.
From bricks to clicks
The rise in online shopping and m-commerce has put pressure on retailers to go multichannel or face losing out to those that do. PwC’s survey of 1,000 consumers found that online shopping has become routine, with 14% doing so once a week, compared with just 4% in 2007. Many retailers are also using their websites to drive traffic to a slimmed-down bricks-and-mortar presence.
Online sales have grown from low single digits to 15% of Karen Millen’s UK business in the past four years.
Shearwood expects sales channels to gain in importance as more technologically enabled generations start to shop. “In the next 10 years, 70% to 80% of clothing sales involve some sort of web interaction,” he says.
Multiple retailers will continue withdrawing from secondary locations as they seek to exploit new sales channels and pursue international expansion. In the UK, relocation will become key in the years to come, as retailers move towards a slimmed-down bricks-and-mortar presence with a focus on key locations and major shopping centres.