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WHAT THE FUTURE HOLDS FOR THE UK HIGH STREET PROPERTY SECTOR

In 2018, data from the Centre for Retail Research found that more than 2,500 mostly medium to large retail businesses failed, and the outcome for 2019/2020 promises to be no better. Out of all the dooming retail news, Arcadia’s CVA approval and store closure plans for Sir Philip Green’s most renowned fashion brand, Top Shop, highlights the depth of the struggling retail environment in the UK. 

The underlying reason for this retail downfall is the decline in the number of High Street shoppers. Figures from the British Retail Consortium (BRC) show that the number of shoppers visiting the High Street fell by 4.5% in June 2019 as compared with 2018.  Unsurprisingly, the decline in the number of High Street shoppers has been matched by the rise of online shoppers, allowing customers to buy what they want at anytime and anywhere at the click of a button. In addition, high rents and business rates have put many popular retailers – such as Debenhams, Monsoon, Mothercare and Toys R Us – into administration.

Traditionally, the High Street property sector has been characterised by long term leases which provides longer security of rental return for commercial landlords. However, as a result of the consumer shift towards online shopping, increased renting costs combined with the political and economic uncertainties caused by ongoing Brexit negotiations and further delays, many High Street retailers are reluctant to commit themselves to long term leases. The market has seen a noticeable shift towards shorter term leases incorporating a tenant only break option which inevitably places the landlord in a weaker bargaining position. 

The reality is that High Street retailers, in their reliance on their historic business models, are struggling to adapt to the shift in consumer shopping habits and spending. As stated by Jonathan Goldstein from Future Focus “today’s consumer demands experience. This structural change should influence every decision about real estate”*. The old fashioned retail style, which is predominantly focused on product, must be revitalised and focused instead on quality and experience, as in today’s economic climate, this is what the modern consumers want. By way of example, whilst High Street footfall has declined by 4.5 o/o  compared to last year, Retail Parks have outperformed High Streets in terms of footfall with a 0.1% further increase as a result of the combination of activities and shopping experiences that they offer in contrast to the High Street and shopping centres**.

Ironically, whilst the number of High Street shops closing is on the rise, the giant online retailer Amazon is expanding its retail presence. Having opened 17 Amazon Go Stores in the USA, it has now arrived in the UK, with its debut store opened in Manchester in May 2019, and with plans for 9 more stores to open across the UK. The intention underlying Amazon’s plan is to allow nascent online businesses to learn about the High Street experience and to develop their business further. Amazon believes that its retail presence will allow consumers to enjoy High Street shopping as well as online shopping by giving a High Street presence to its online brands.

It is all about having the new experience of allowing both businesses and consumers to learn and take advantage of a retail presence. At the same time the consumers can learn about the new online products which they might not have previously encountered, and so learn about new brands. The idea works in exactly the same way as when most retailers first started marketing their products online as well as in their stores. Amazon is not the only online retailer switching from an online-only base to a physical retail presence. Bohoo, as one of the most well-known online fashion retailers, has also recently announced a site for its first High Street store. 

Although there is uncertainty as to whether a physical retail presence would tempt an online consumer back to the High Street, the trend is no doubt changing. It has become obvious that all retailers need to diversify their business models in order to make the most of a fast moving business climate that is inseparable from modern technology.

Given this challenging financial climate, those retailers who can adapt to the consumer’s preferences and offer shoppers new and exciting experiences are more likely to succeed and sustain their business. A perfect example of this approach can be seen in Primark opening its largest store in Birmingham earlier in April this year, featuring a Disney Themed Café, a barber’s shop, a beauty studio, in addition to the store’s affordable fashion lines***.

We are now witnessing a new stage in the evolution of the retail sector. Existing High Street shops will need to be replaced with something more experiential, digitally integrated and customer-centric in order to survive. In terms of the long-term effects of the current High Street downturn, there will be no need for multiple stores to be opened within close proximity to one another, given the increased shift to on-line shopping and the associated costs with High Street presence. In terms of short-term solutions, many retailers may be required to downsize and reduce their operation costs in order to retain their presence in the current challenging High Street Market.

For advice on commercial property matters, please call 0208 951 6989 and speak to:

Idnan Liaqat, Partner and Head of Commercial Property, Investment and Residential Departments or via email IL@axiomstone.co.uk

Please call 0207 016 9333 and speak to:

John Oliver-Bellasis, Senior Associate, Commercial Property or via email John.OB@axiomstone.co.uk

Article written by Sou Babaei, Commercial Property

 


 

* Property Week, 5 July 2019 edition.

** Retail Gazette 15 July 2019, https://www.retailgazette.co.uk/blog/2019/07/june-footfall-plunges-to-7-year-low/

*** https://www.bbc.co.uk/news/uk-england-birmingham-47867785