The UK economy
The United Kingdom remains the world’s sixth largest economy. Services are the biggest sector of the economy accounting for more than 75 percent of total GDP.
GDP expanded 0.70 percent in the second quarter of 2015 over the previous quarter.
Prices faced by households are unchanged over the year to June 2015 compared with a 0.1% rise in prices in the year to May. This means that a basket of goods and services that cost £100.00 in June 2014 would have still cost £100.00 in June 2015. This continues the trend of recent months when inflation has been at or around 0.0%.
UK Rates system
“More than 80,000 shops across the UK could close within two years without an overhaul of business rates, according to the British Retail Consortium, as thousands of shops may be tempted not to renew their leases within next two years before the rates re-valuation in 2017.”
Comment: In the North, Rateable Values have dropped by 50% sometimes from the true current rental values so making trading difficult.
Tenants may not renewing leases to move to take a new lease adjoining in order to get the lower rate benefit immediately, rather than having the normal 10% odd annual reduction offered by transitional rates relief.
The trouble is that in the South rents have climbed, especially in London so an immediate adjustment would hit London hard. I don’t see the Chancellor killing off the London golden goose in this way.
Ministers have been warned too that changing shopping habits with more e-based transactions are changing the face of the High Street. Osborne revealed he would launch a review the business rates system and pledged to deliver the findings by next year’s Budget.
Internet companies pay no rates for shops as they generally don’t have them so are at a great advantage.
Foreign cash continues to pour into the UK with the Euro having been so weak. This is especially clear in High Street property investment and residential where whole new flat developments such as Battersea Power Station, are bought off plan by the Chinese especially. The Qataris now own large blocks of key London Streets for example like Oxford Street and Brompton Road.
We may have to get to the position in Denmark where flats have to be occupied not just bought for a long term vacant hold as they can be in the UK.
Retail sales have generally been good overall this year although Burberry reported a slowing of sales as weakening Chinese demand took its toll with only 6% increase in quarterly sales, while Mulberry reported a 1% rise returning to growth this year and Jimmy Choo were up 12% year on year. TM Lewin returned to profit this year on its 100 shops.
Retail Sales in June were flat compared to May while sales were up 4.5% in April but still above average for the time of the year. Clothing did well and Cinema spending was up by 41%.
Outside London demand for shops is improving in the better quality towns with rents stable but rents are still falling in the less wealthy town centres. Value retailers have moved in to take a lot of the large empty space but are moving the poorer centres to a value base which will mean full price retailing will no longer be able to compete.
For example M&S have moved full range stores out of many poorer town centres and moved their Simply Food offer onto out of town retail parks, as has happened in Hartlepool for example.
In focusing on a new brand’s High Street retail offer consideration has to be given to market positioning in the changing face of UK retail.
UK High Street Retailing – where is it heading?
- The London retail boom continuing pushed along by tourism and the attraction of major international events.
- Luxury brand buyers don’t want “Made in China” on the label any more, plus there has been some fall off in luxury sales due to China’s weakening economy.
- The 10 or so Mega shopping Centres will grow in popularity.
- Quality towns that attract tourists as well and have something more to offer will get stronger.
- Factory “Designer” Outlet Centres offering discounted goods will remain popular and will lessen any adjoining High Street’s fashion offers. To succeed in an outlet centre retailers must make product for that market specially and not sell off unsold product. It is not a way to position a full price product though in entering a new market, as it will damage a brand.
- Value retailers in town centres will make it uneconomic for full price retailers to trade, making some poorer town centres decline further.
- Retailers will increase market share if they make what the customer wants, not purely for their own profit as Apple have been so successful at. A retail experience in the shopfit and customer service in a shop is essential for survival as otherwise why not just shop on the internet.
- Traditional Supermarket Groups have taken a battering from Lidl and Aldi. High Street 3000 sq ft mini food stores are the norm now we all shop many times a week now. Large Supermarkets will have to hive off maybe 50-75% of their space perhaps to un-associated fashion or other out of town retailers to survive the changes that have taken place in shopping habits.
- New retailers are emerging with a strong internet sales basis with different products and take share from those that have lost their way.
- Retail warehouse parks have seen a resurgence,with more and more fashion retailers wanting to move out of town into larger units with free parking.
- Digital Reach being essential-live streaming of Catwalk shows for example and ability to buy immediately via Twitter. Burberry was first but other labels are catching up like Gucci and Louis Vuitton. Targeted advertising at passers-by is becoming more usual with Birmingham New Street Station redevelopment having electronic bill boards changing advertising as the system picks up your phone and socio economic group consumer likes.
- The same thing has happened in shopping centres too with targeted offers being sent to one’s phone.
- Restaurant/Coffee chains will continue the expediential growth as UK Society eats less at home and making a food offer essential to a High Street’s survival. (14.6% increase in sales from 2014).
- Town Centres with free parking are winning out on rival town centres.
- Future retail losers will be: DIY stores (B& Q closing 1 in 6 stores caused by increasing house renters than buyers and a move to get trades people instead by young working people) ; Travel agents, Money Shops (All of Money shops 200 shops on the market), Building Societies, High Street Banks and mid-priced High Street fashion and shoes.
- Consolidation of the big internet fashion retailers and opening showrooms in London.
- Future retail growers will be value retailing, jewellers, electronics, fashion, restaurants/coffee shops, Charity shops, luxury and affordable luxury retailers, the perfume market, baby clothes and discount food chains.
Rents continue to grow in London due to the pressure from international retailers wishing to open new shops. The high fashion street rents have grown to £500 Zone A in the Dover Street area to £1500+ in prime Bond Street and £900 in Brompton Road- having jumped there by about 50% since 2014.
Large premiums are normal for any lease assignment and even in some cases for new leases as well if the landlord thinks they can achieve it for a prime site.
Most leases are contracted out of the Landlord & Tenant Act in London now and one large landlord is removing premium value by demanding they buy back leases at a fixed pre-ordained sum.
A lot of new retailers are opening all over London. Skechers and Hawkes & Curtis are planning along with Kiko the make-up brand to move into the Oriana scheme at the east end of Oxford Street and Dr Martens (owned by Perima private equity) is to open in 386 Oxford Street.
Anthropologie, Maje and Caroline Gardener have recently gone into Marylebone High Street where Zone A‘s are now up to £375 which is relatively inexpensive compared to prime Streets in Mayfair.
Lingerie retailer Boux Avenue will open a flagship store on London’s Oxford Street as it seeks to cement its high street credentials, while at 447 Oxford Street Omega opened a flagship store as well as the stunning Ecco flagship (6,000 sq ft) and Watches of Switzerland (7,500 sq ft fitting out).
Adidas have opened off Carnaby Street.
Ben Sherman doubled their footprint in Long Acre for a 4000 sq ft store at £595,000pa.
MG cars, the Chinese owned buyer of the famous old English brand has opened a flagship showroom in Piccadilly following the trend of car retailers opening in London.
The Crown have attracted new retailers to their Regent Street St James Estate with new names on the High Street like Osprey handbags as they develop lower Regent Street and Piccadilly and Jermyn Street further.
Bike Rooms, a high performance cycling shop will take 3000 sq ft being another letting in Regent Street St James. They had a pop up shop at the Olympics and trade in Manchester.
Luxury London locations
The luxury fashion streets remain Bond Street, Mount Street, Dover Street, Albemarle Street, Conduit Street and Sloane Street, but pressure for more space is pushing the boundaries to adjoining Streets like Maddox Street now. Vanessa G, a South African fashion brand signed up on 55 Conduit Street. Kelly Brook is a fan.
Connolly moved into 12 Clifford Street buying a Freehold for £12M to become a leather brand in their own right being suppliers to Rolls Royce cars.
Gina luxury shoes who moved out of Old Bond Street to Mount Street with the help of a large premium now have sales of £7M and are selling more abroad than in the UK now with shoes at up to £18,000 a pair.
RM Williams, the Australian shoe company with elastic sided boots now bought by LVMH and one store in Bond Street and 51 in Australia want 1400/2500 sq ft in London only from Piccadilly to Soho.
Aquazzura the Italian luxury retailer of shoes and bridal wear are to open in 37 Albemarle Street following Alexandre Wang opening its first European flagship store. 38 will be taken by Faliero Sarti the Italian scarf maker.
London Westfield Stratford City & White City
Continue to be popular but we have seen a lot of brands selling up and trying to get out of their leases with a lot of units on the market in both centres. This is partly due to only the strongest surviving and also due to increased rents on review. Few if any retailers will ever get a premium for lease sales in these Mega Centres or indeed most shopping centres partly due to pre-emption clauses and a lot of availability at any one time usually.
High Street fashion
Superga contemporary “plimsoles” having done collaborations with designers like Versace and with 7 stores and looking at towns like Truro to Cambridge plus some pop ups.
Ecco too are seeking 1000 sq ft shops in prime locations is Brighton to Winchester again high AB areas.
Pavers Shoes a value chain with 110 concessions and stores are looking for 2500/4000 sqft shops at all in rents/rates/service charges of below £150,000 pa
Jo Jo Maman Bebe are still after 800/1500 sq ft across the UK but again in wealthy towns like Beaconsfield to St Helier. (68 stores and 10 in 2014 acquired).
Edinburgh Woolen Mill are expanding again having open 34 in 2014 and want another 100 shops aminly in the North.
Mint Velvet are still looking in the better quality towns like Beverley to St Andrews of up to 2000 sq ft in good locations.
Debenhams like-for-like sales edged up by 0.9pc in the 41 weeks to June but there was no improvement over the last 15 weeks compared to the same period last year as spring sales ate into profits. Online sales jumped 16.7% over the 15-week spell, and 13.9pc over the 41 weeks to June as Debenhams improved its website, service and delivery operations.
The House of Fraser on the other hand now owned by Sanpower of China since late last year (£450M purchase) is now expanding in China while opening in Abu Dhabi in what they see as affordable luxury below the like of Harrods.
Moss Bros expanding again in 200/4000 sq ft shops in the UK while the White Company now with 50 stores is still expanding having made sales of £143.8M last year up 38%.
Ernest Jones & H Samuel went up 45% in quarterly sales in May to £1.5b. Signet also operate Kay jewellers in the US and are owned in the US now.
Marks & Spencer’s fashion sales were flat again with a 1% drop in non-food sales but food was up 0.3%. Lots of advertising and celebrity models have not helped much. Half the problem is food and fashion do not mix unless you are a John Lewis and can separate the food better instore physically with more space available to do so.
Clarks Shoes reported “stiff trading with sales down 3.2% in the UK as consumers consistently and actively sought value purchases.” The retail climate was said to be very price sensitive and traditional formats come under pressure from online growth.
Vodaphone are opening like no tomorrow throughout the UK in virtually every town that does not have one.
With the perfume market generating £1.4b in 2011 and a 45% growth by 2016 Kiko an Italian cosmetics company with 600 stores in Europe should have 20 stores in the UK this year with 60/1000 sq ft throughout the UK with 20 more needed in 2016. The Fragrance Shop with 170 stores in most shopping centres and Space NK.apothecary wants more shops along with Proskin being after 1200/2400 sq ft in major shopping centres.
Rush Hair want 30 shops having 70 to date mainly in London while Michaeljohn London want 1000 sq ft in London only.
Charity Shops continue to expand with BHF looking for 800 sq ft in 22 towns with a portfolio of 600 branches along with larger stores for their furniture/electrical division while Scope-disability,with 250 stores- are after the same size throughout the UK. Sue Ryder with 400 shops seeking between 800 and 8000 sq ft in High Street to Retail Parks.
Stewies Doggie creche looking in London for 1500/3000 sq ft while PamPurredPetts want southern shops of 3000/5000 sq ft on main roads.
Hotel Chocolate Boutique -300/1000 sq ft are 7 more in London and towns from Manchester to Liverpool,while La Perla are after 200/800 sq ft in London only.
Pylones a French gift retailer with 100 stores worldwide are after 600/1000 sq ft in niche locations on High Streets from Canterbury to Winchester and Ireland.
Phone Service Centre are looking for 150/350 sq ft kiosks for phone repairs with 200 shops in Europe.
EE with 580 stores is looking for 1200/1500 sq ft throughout the UK along with Vodaphone who are expanding the most rapidly.
As the E- Cigarette takes off with sales growth from £13M to £1.7 bn since 2008 they will account for 10% of the tobacco industry the likes of V-Revolution want to open shops of 100 to 800 sq ft in High Footfall London areas. It seems anything with an “e-“ works these days whether it is good or bad for you!
Farrow & Ball are after 750/2000 sq ft from Aberdeen to Reigate in about 13 towns in all of which are high AB socio economic areas like Dublin, Dorking, Chester, Exeter etc.
The Greetings card industry continues to expand with the likes of Cardsdirect with 5 stores open and wanting more in the Midlands and South along with Clintons and Paperchase.
Smiggle, a children on line stationers are looking for 700/1000 sq ft from Bournemouth to York.
CeX a computer exchange are opening franchised shops of around 1000 sq ft all over the UK filling the gap left by Game but with a twist.
“As a second hand retailer offering either cash or a voucher for redemption in any CeX store. A customer will typically receive around 50% cash with 65% exchange of CeX’s selling price for the item, depending on condition. Some premium and new release items CeX will offer close or sometimes higher than the as new retail value of the product. CeX offer a 12-month warranty subject to terms on all of the second hand products the company sells. CeX also accept Bitcoin as a valid currency for items on their website. Wikipedia”
Mail Boxes etc with 1400 stores worldwide and trading for 14 years are still in the market for specific shops up to £45,000 pa mainly in London now.
Maplin continue to expand into 2500/5000 sq ft units in London and more in the South.
The £1 shops continue to prosper. The CMA is however investigating the anticipated acquisition by Poundland Group plc of 99p Stores Ltd and 23 October a decision should be made.
Pep & Co has been set up to rival Primark by Andy Bond ex Asda CEO, backed by Christo Wiese the South African billionaire opening in Kettering AND with plans on 50 UK stores initially and 1000 eventually. They are targeting the smaller towns Primark have ignored.
Pound world with 280 stores are looking for 60 new stores.
The Cycling mania in all its forms continues to prosper with Cycle Republic & Evans continue to expand apace.
Jessops are back in the market post their Administration for 1200/3000 sq ft shops in key town centres only like Oxford and Edinburgh.
The drive for the small food store concept remains undiminished with Little Waitrose wanting 4000/4500 sq ft in London and wealthier counties, while Budgens, Sainsburys and the Coop want 3000/10,000 sq ft. Aldi are after 6000/10,000 sq ft with no parking in the Cities up to 14,000/18200 sq ft. Lidl 1.2 acres.
Burger King are expanding being entirely a franchised group now, into in and out of town locations, along with McDonalds and KFC.
Coffee Shops & Restaurants
Carluccios continue to grow from 80 restaurants and wanting at least 12 per year and Bills Restaurants have grown exponentially. Prezzo are pushing for more and more sites too. In fact the restaurant sector is booming like it has never done before. Pret a Manger (Owned now by Bridgepoint private equity that owns Ask and Zizzi and with 300 shops) are now moving in to give a restaurant type menu to capture evening trade following Starbucks at Stanstead Airport.
Haagen-Dazs has remerged having sold most of their cafes before looking for 1600/2700 sq ft in Covent Garden and W1 & N1.
Costa with 1,755 shops in 2014 remain the dominant brand throughout the UK but with Muffin Break, Café Nero, Eat and Esquires Coffee and BB’s all wanting more shops.
Quite a lot of retailers have failed this year due to loss of brand loyalty, a tired product/concept or death by internet or bad management.
Retailers cannot survive stuck with traditional products that the market no longer wants anymore.
The Sting – a Dutch multi brand store seems to be pulling out of the UK with both their Stratford Store and Regent Street flagship on the market. They have 80 stores selling some 30 labels, in Netherlands, Germany, Belgium but the UK concept no longer works for them.
Blue Inc has 28 shops on the market across the UK-an affordable casualwear brand. They operated a lot of pop up shops too.
Ladbrokes (2,220 shops) are shedding 27 non performing shops mostly in the poorer towns or where rents have become too expensive for them like in Dover Street London where the rent was £127,000 pa and now £500,000 pa is being quoted for a slightly larger shop.
TaG Heuer have also caught a cold in Westfield’s Stratford & White City being to upmarket for the Centre in our view.
Bank’s 68 shops went into administration all over then UK.
East ladies fashion went into administration with a prepack closing 19 shop keeping 82 stores.
Vodaphone while expanding like mad throughout the UK have 16 non performing shops on the market in some of the poorer shopping towns.
La Coste are relocating from Brompton Road flagship store presumable as the location opposite Harrods did not work for them.
Ferrero has extended the offer deadline to Thorntons’ remaining shareholders for a third time as it seeks to take full control of the retailer.
Morrisons Local have 18 stores on the market across the UK and Tesco has 43 stores on the market and 49 developments have been shelved to plug the black hole in their accounts.
Bank, a multi fashion fashion chain, based in the north and Scotland failed with 84 shops at the start of the year. It was owned by Hilco a distressed company investor.
Jaegar continues to shrink shops run by Better Capital (known for the collapse of City Link parcels) as losses mount and stores are closed. Harold Tillman intends to open a rival group to take their customer base.
Austin Reed (owned by Dariuis Capital) entered a CVA at the start of the year to extricate from many of its 232 outlets with 32 closures and 22 Country Casuals. A 20% rent cut was granted by landlords on many leases. The company has lost its exclusive brand image and not updated it styles and now suffers from not having a recognised menswear niche in the market.
East, the ladies fashion retailer closed 19 stores and 5 concessions after a prepack administration.
BHS –part of Arcadia -was sold to Retail Acquisitions Ltd for £1, it was reported, on the back of a 2013 loss of £69.6m on £675.7m of sales. The new company is former Formula 3000 racing driver and entrepreneur Dominic Chappell, former City finance house Nabarro Wells director Keith Smith, lawyer Edward Parladorio, and Lennart Henningson, a former senior advisor for HSN Nord Bank.
Gap once the darling of preppy clothing is closing 175 stores worldwide after a sale of 200 four years ago. Falling sales, competition from Primark and H&M have seen sales tumble. Old Navy is doing well though.
American Apparel has increased its losses to $26.4M in the 3 months to March on a sales drop of 9%.