Summer in UK Retail – The Heat is On
August 6, 2018.
Julian King, Partner & National Head of Retail at RLB UK, discusses a turbulent summer for UK retailers.
As we all know retail is in choppy waters, however there is much to suggest that retailers are finally getting themselves both lean and prepared for probably five years of significant change. If the number of bids and enquiries in my own business are an indicator then retailers are indeed planning to invest in change and we are forecasting an uptick in associated store works including downsizing, re-sizing, new smaller formats, a convenience expansion and indeed more town centre “ultra” convenience as residential and flexible office space moves into no longer fit for purpose retail locations and drives an increase in town centre footfall.
Consolidation is the Name of the Game
Consolidation is the name of the game in big supermarkets and the drive toward a “one stop shopping mission” seems to be the direction of travel as the big four and a half operators (M&S making up the half) look to diversify space and bring in suitable and complimentary concessions to store portfolios right sized for the 1990s. The best example of this is Sainsbury’s takeover of Argos and Habitat and now its intended merger with ASDA to further consolidate its operational cost base and maximise the value of these huge brands acquisitions.
Meanwhile Tesco has opted for an alternative model by merging with Booker Wholesale and hopes to maximise its investment by opening Booker Wholesale in oversized stores and further bolster its hold over supply chains. This model has been further strengthened in the last week with a mooted tie up in Europe with Carrefour, again hoping that the resulting buying gains will allow them to invest in “price” to the customer and head off its continuing market share hemorrhage to discounters.
Online retail “getting physical”
The obvious and well publicised move to online (anywhere between 18-23% currently) is only going one way and is impacting just about every corner of traditional retail. However, as traditional retail finds its mojo and distills the mechanisms to fightback, this is likely to slow. This will occur particularly as traditional retail strengthens its online position and adjusts its store networks to showcase online and finally create the fabled frictionless retail customer journey. We are even seeing a minor trend developing for online retailers needing to “get physical” with Boden for example opening a series of concessions in John Lewis and a new flagship store in Westfield White City. This is a particularly unique scenario as having only one physical store until recently Boden is able to analyse and absolutely show the uptick in sales by location of a physical footprint and thus prove the added value to the brand of having a well placed destination store footprint.
A further trend powered by the varied choice of sales channels now available is the massive growth of direct to customer sales by trusted and well recognised brands now able to communicate and sell directly to their “fans” through a whole manner of online and social media channels meaning they no longer have the reliance on brand integrators and department stores like House of Fraser and Debenhams that appear to be in terminal decline.
Social and Experiential Retail
Out of town and larger destination malls are still experiencing decent footfall (falling only about 1% YOY) as they cater to those seeking both social and experiential shopping. However, we are seeing events like the World Cup and weather increasingly being blamed or relied upon to drive sales that probably means retailers are somewhat scraping the proverbial barrel for excuses and reasons why marginal business cases or targets are failing.
Meanwhile Hammerson has quietly announced this week the intended sell off of their Retail Parks division to concentrate on the larger prime destinations in their portfolio. However, conversely, they have also announced plans to shelve the long awaited redevelopment of Brent Cross, surely one of their real prime assets, awaiting one supposes a more stable retail climate for such a huge investment.
Allied to Retail the experiential side of leisure continues to buck the trend with people increasingly spending on experiences rather than more “stuff”, probably largely to do with a backlash against the last 20 years of cheap, mass produced products now filling our houses and in part to the changing demographic of the customer. Younger customers are less likely to need or want much “stuff” as they are a) still living with parents or b) have a tiny probably rented apartment that is too small for much “stuff” and c) they are still living a student nomadic lifestyle well into their twenties.
IFO’s delivering value
Food and Beverage is largely showing many of the same traits as traditional retail with informal eating out (IFO) brands delivering family value, such as McDonald’s, romping away with their market while higher price points chains are beginning to fold left right and centre. The example this week is Gaucho’s going to the wall. This emphasises a change in spending behaviours and probably indicates that our visiting and traditionally high spending London tourists are probably hunting for value in the same way that UK residents are, hinting at a more global slowdown beginning to affect trade in general.
Discounters still stealing market share
The market continues to fall in love with the discount sector that is continuing to steal market share from just about everyone. Until the current recessionary customer behaviours begin to abate (probably post Brexit) then this sector will thrive at the expense of larger more established retailers. This sub-sector is largely unaffected by online but can be just as prone to debt and mismanagement as the rest of retail as seen by the over expansion and rapid decline this week of Poundworld, highlighting the need to concentrate on costs and run a lean ship – a valuable lesson currently being scrutinised by many others.
Anything Could Happen!
In such a changing retail environment literally, anything could happen in the next six months as existing associations unravel and traditional retail bedfellows fall out of love and look to younger models to drive their businesses forward. For instance, we see the disastrous effects on profits of Sport Direct effectively betting on the future of department stores with large stakes in both Debenhams and House of Fraser. How many lesser known deals will become tragically public as the heat of summer and pressure continues to build around historical retail expansions and takeovers fueled by debt? My prediction is that the second half of 2018 is sure to yield yet another set of pretty surprising headlines!
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