Leicester Square – Summer 2013
The housing market in the UK is roaring back to life with reports of a likely 10% pa rise in London prices forecast for the next few years. High Street retail confidence is growing as the UK formally comes out of recession.
Retail spending grew in the first quarter since 2009, despite appalling UK weather conditions until the heatwave started in July.
The economy grew by 0.6% in the 3 months to June 2013.
Footfall fell by maybe 10% (Ladbrokes Betting estimate) in shopping centres in July because of the heatwave but High Street retailers generally benefited over enclosed centres as always happens when it is hot.
e-retailing trends
More retailers are using the internet to interact with their retailing as 49.9% of customers say they browse a product and another 18.2% say they will do more often in the future(IMRG/e-digital research).
The UK online market will grow at 10% pa (Forester) to reach £54.7B in 2017 from £41.8B in 2012. Customers are ordering more sizes and returning what they don’t need making internet shopping more flexible for the purchaser
Not all retailers are moving more of their businesses on line, the reverse is sometimes happening with the likes of N Brown, the mail order and e-retailer who have opened 7 stores including in Manchester, Liverpool and Doncaster and now want more shops.
To a certain extent retailers will still have to showroom their on line products as Jessops have done for their reduced 40 shop chain post its purchase out of receivership.
Nevertheless the High Street remains the favourite place to shop for fashion across Europe (CBRE Study) with 85% saying visiting a shop was crucial. Indeed 25% of goods only will be likely to be on line by 2020. (BCSC research.)
Of the UK’s 43M sq ft of vacant High Street space it is said this could be turned into 90,000 new homes that are needed to cope with the UK’s rapidly expanding population. Maybe there is hope yet for a lot of run down empty shops if Councils will give up their 100% empty rate charge on empty shops on those unfortunate landlords.
On the subject of the UK rate burden, the delayed rating revaluation until 2017 has hurt retailers especially in the North, where rental values have fallen the most and properties cannot have a rates reduction until perhaps 2018 in practice.
For example in Hartlepool the Rateable Value for a typical town centre prime shop is RV £78,000 established at the height of the market in April 2008, whereas the market rental value in 2013 now is more like £50,000 pa. This costs the retailer £28,000 more RV to pay in rates assessments. There are worse examples too.
That leads us onto another big argument on why internet retailers pay no rates whereas the High Street does and thus have a hugely competitive cost base advantage. It is rather like companies sheltering all their profits from the UK to avoid tax.
Turning to how the different market segments are working, retailers of luxury goods remain confident in a business improvement as 22% of UK affluent achievers (CACI survey) are now the most confident and will boost luxury spending.
The financially stretched, unsurprisingly, are the least confident with their outlook dropping by minus 5.6%.
Value retailing will continue to thrive as has been seen with the growth of pound shops to “money shops”. Money shops themselves now have 500 shops and there are lots of different operators in most town centres offering 500-2000% interest loans, much in the news, with the Archbishop of Canterbury trying to set up local loan associations to remove their business at fair rates of interest.
Savers health another value retailer, acquired 15 shops in 2012 and want 30 more in 2013.
The weaker medium and small sized enclosed Shopping Centres will no longer have the brand spread and retailers like Menkind (with 7 shops and 16 pops ups who are looking for another 25 shops) will end up occupying a lot of vacated space in many centres.
This will lead to a deterioration of the pull of a lot of the weaker enclosed shopping centres as the good brands will only be in the better centres, mega centres and High Streets.
Outlet Centres will however continue to flourish as they offer value and design and a concentration of good brands. Bicester Village is the most profitable scheme in the world with sales of £2000 per sq ft. (£21,528 per m2). A typical 1000 sq ft unit thus has sales of £2M pa.
The High Street where quality and something different is available will attract customers. Space is always more flexible too in property terms than a fixed shopping centre.
London Footfall
Footfall is higher than ever with Regent Street now at 90M pa and Oxford Street maybe at 200M pa compared to White City at 25M pa which puts London’s pull into perspective. Selfridges take £1B pa too, being a destination in its own right.
Luxury London markets
Are booming still in the West End with rents up everywhere.
The Oxford Street end of New Bond Street, has for example, now has now shot up from £285 per sq ft to £430 in 6 months of this year.
In Bond Street the jewellery/watch business is rocketing with Chopard due to open at 12/13 New Bond Street, paying £1300 per sq ft on 30 ft Zones a record high in April up about 30% on the last deal.The Kering Group the owner of Puma, Gucci and Alexander McQueen are also to open in Marina Rinaldis ex store (Max Mara) at 39 Old Bond Street as well.
Breitling opened where Diesel was and Vacheron Constantin opened at 376 Old Bond Street.
This is all being fuelled by visitors and the wealth of London with the Chinese spending an average of £2000 per purchase when they come to London in Bond Street.
Recognising the huge growth going on Prada was is keen to buy its Freehold at 17/18 Old Bond Street post LVMH buying 160 New Bond Street.
In Brompton Road near Harrods, Tommy Hilfiger opened as the landlord’s, the Qatar Investment Fund seek to uplift the retail brands more akin to Sloane Street eventually.
Of other luxury retailers Louis Vuitton sales only rose by 1% (Givency, Christian Dior, LV and Donna Karen a recent acquisition. Graff sales were 11% up.
The UK
Fashion sector
Amongst new schemes opening in the UK in Birmingham and Leeds some of the retailers expanding have been:
Adidas, Apple, Bose, Boots, Burton, Lego, Charles Tywhitt, Deichman, Oasis, Pandora, Superdry, The Perfume Shop, Timpson, Topman, Footlocker, Swaroski, River Island, Mango, Men Kind, H&M, Paperchase, Hobbs, Kath Kidson, Hugo Boss and Calvin Klein.
Other companies doing well are Fat Face owned by Bridgepoint Equity who saw a 12% increase in sales and profits jumped by 35% by selling “a lot of dresses…..customers seem to like our T shirts and Shorts”.
Ted Baker sales continue to rise. They opened in Glasgow at the earlier part of the year. Revenues were up 19.4% and womenswear by 27.7% being 54% of total sales.
The White Company sales rose by 14% to £116m to March with its 40 outlets.
LK Bennett sales rose by 15% to July last year with its 160 outlets and owned by Phoenix Equity Partners and Sirius Equity.
Mink Velvet having first been in concessions are now expanding having opened in 1000 sq ft shops in Edinburgh Guildford, Harrogate, Marlborough and Reigate and are to open in Sevenoaks.
Urban Outfitters, the young value brand, with 34 outlets in Europe are seeking 6,000/15,000 sq ft stores in London, Oxford, Kingston, Cambridge and Norwich.
Cotton Traders with 100 stores are looking for 24 stores across the UK of about 1500 sq ft.
Silk & Cashmere operating 29 shops in Europe and Turkey are after up to 400/ 800 sq ft all in London.
Dr Martins with 4 stores want another 15 in London to Newcastle of about 1000 sq ft while Bjon Borg underwear, with 50 stores in Europe, opened their first store in Great Titchfield Street.
Blue inc and Officers Club are after 1500 to 2500 sq ft nationwide and Moda in Pelle are after 10 more shops of 300 sq ft plus in affluent towns.
New Look, owned by Apax and Permira Equity, returned to profit having made a £31.1M pre-tax loss last year but better than the £55M loss the year before.
M&S have halted their clothes expansion in May focusing on its more profitable operations on line and in food.
Non-Fashion sector
Argos (Home Retail Group) sales rose for the first time in 5 years and will return to growth this year on a 2% sales rise.
Evans cycles (now 46 shops) continue to expand into up to 4500 sq ft units as the UK cycling craze continues and is supported by the government. Their requirements are mainly in the South.
HMV was bought in April by Hilco, the Canadian company in a 141 store deal with 78 now closing against HMV pre-tax loss of £347M.
The Food sector
The 100,000 sq ft supermarket format expansion is dying and consumers will gradually see a lessening of products available as it is just not so profitable as it was to keep so many competing brands as been witnessed in the rapid growth of convenience stores over the last decade.
Surplus Superstore space could in future be used for internet storage or even “showrooming” being more likely of course as Macys have done in the United States using surplus space for internet stock.
The Coop, Waitrose, Sainsburys and Morrisons, M&S and Tesco continue to expand into convenience stores of 2500/4000 sq ft. Morrisons took nearly 49 Shops from Blockbuster who went into liquidation at the beginning of the year.
M&S are also after 10/20,000 sq ft gross stores on 1 acre sites as are Aldi.
The Coffee /Restaurant market remains dominated by Costa who have 1200 shops and expanding in 500 to 2000 sq ft formats. They had an 8% jump in sales.
Starbucks southern franchise partner, the Co-op, is looking for 1500 sq ft shops in High Streets to Hospitals. Starbucks seem to be franchising a lot of expansion now in the South West too.
Vital Ingredient with 12 sites are looking for more in London for its salad offer.
Auntie Annes with 28 stores are planning to go to 100 stores within 5 years (US Focus Brands) and Subway are looking for 1000 sq ft shops as drive thrus.
On the fast food side McDonalds are after 300 new drive thrus in the UK as are KFC. Five Guys Burgers, with 1000 US stores and another 1500 under development opened in Long Acre Covent Garden and are after 2000/4000 sq ft with A3 use.
Pizza remains big business in the UK s it is cheap and easy to make and the customer requires no education on the product, with Dominos and Papa Johns, rapidly expanding against a backdrop of Prezzo with 150, Zizzi 126,Pizza Express 400, Ask 120 and Pizza Hut with 400.
Out of town Retail warehousing
Rents are falling out of town as Value Stores and Pound shops leased empty space taking more than 1M sq ft of empty space (Knight Frank Report). Poundland had 120, B&M 410,000 sq ft and Home Bargains 230,000 sq ft.
Problem retailers
Build a Bear had 22 of its stores on the market.
Dwell Stores the upmarket furniture store group went into receivership with its 23 stores. The founder of Dwell has said the upmarket furniture retailer will do “everything we can” for customers who face losing £1m in deposits after he bought the company out of administration.
Modelzone is selling its 44 stores, none a particularly high shop rents but brought down by competing internet sales we think.
Bench and its sister label Hooch, was to be put up for sale while its is Manchester based parent company Americana International was put up for sale for about £250m in 2011.
Americana, which generates annual sales of £100m and of £16m, has been owned by private equity firm HG Capital since 2007
Jaegar seem to be downsizing selling Cheapside and Leadenhall Market.
Country Casuals continue a gradual sell off as the brand fades with 3 north east shop affected.
Lavazza were looking for the top 50 UK towns but may not now do so after running into problems with its master UK franchisee Catalyst Retail and sub franchisees asking for their money back.
Monsoon did badly with a £4M loss in 2012.
French Connection, in the year to 31 January 2013, Group revenue fell 8% to £197.3 million as a result of declines in sales volumes in both their retail and wholesale businesses in UK/Europe. Group loss before taxation was -£7.2 million, compared with a profit of £4.6 million last year.
Timpson bought Snappy Snaps earlier in the year.
Sports Direct has purchased 116 Republic stores, the brand name and its head office. It has also bought all Republic’s stock, and sub-brands, Fabric and Crafted.
M&S sales fell 3.8% in clothing but are having a big push with new fashion and a high profile marketing campaign.
Companies to watch who might be at risk are Dixons, Pret a Manger, surprisingly given the strength of the Coffee Market but backed by McDonalds so are least likely to have problems, Mothercare, Waterstones and House of Fraser, all of whom have high levels of debt.
