Regent Street, London
The UK economy is 2.7% larger than ever before and is growing at its fastest rate for four years. (ONS)
Average UK prime retail rents in the summer climbed 1.9% in the previous 12 months mainly driven by London rent rises 11.6% up and 20% above 2008 levels. Some locations have shown extraordinary growth of 400% as they metamorphed into luxury fashion shopping Streets.
Foreign cash into the UK was 14% up on last year and the Country is now a top destination for foreign companies.
Russian sanctions and the falling rouble and turmoil in the Middle East have reduced spending in London but the African elite are however buying up homes and account for 5% of the ultra-prime residential market. Nigerians are the 4th biggest overseas shoppers with an average spend of £628 per head.
The Qataris and wealthy French families are investing heavily in London commercial and residential property, the former developing a £200M “palace” in Regents Park and the LVMH buying up a £300M part of New Bond Street.
The Indian summer, the hottest since 1910, caused a fall on like for like sales due to shops not being been able to sell their winter stock. Christmas sales are all being discounted as a result but the cold weather has thankfully arrived along with heavily fallen petrol prices are creating a boost to spending.
Next were reported that they may be down about 5% in sales forecasts and M&S showed a decline in the last 3 months to September down 1.2% on menswear and 0.6% on the clothes, with Next taking most of their share.
Shoe shops, furniture and carpet retailers reported strong growth and consumers are still pretty active but have eased back a little having splashed out at a strong rate overall through the first half of the year (Howard Archer IHS Global Insight.)
Department stores on the other hand had a bumper September despite a slowdown of overall retail sales and Selfridges (Weston family who own Primark and Fortnum & Mason) saw a sales rise of 10.4% to £1.2B last year and are spending £300M refurbishing their Oxford Street store.
First half shop space risers have been US restaurants up by 7.65%, Discount Stores by 4.05%, Coffee Shops by 2.99%,Betting shops by 2.54% and Banks by 1.11% and the fallers were Video Libraries -100%, Building Societies -10.32%, pawnbrokers -7.02% (hinting at an improving economy),Men’s Clothes -6.99% and women’s -4.8%. (PwC & Local Data Company).
Average store prices (including petrol stations) fell by 1.4% in September 2014 compared with September 2013. This was the largest fall since July 2009. The largest contribution to this fall came from petrol stations, down by -5.4%. Prices at food stores fell by- 0.3%, the largest fall since December 2004 when it also fell by- 0.3%.
The Consumer Prices Index grew by 1.2% in the year to September 2014 and the rate of job to job moves is at its highest level since the economic downturn, and its composition suggests workers are increasingly moving between industries and occupational groups. (ONS)
Household goods stores turnover increased 12.7% in August compared with the same month in 2013. This is the largest year-on-year increase in this series since October 2001 (16.2%). The main contribution was from furniture stores at 23.4%, the largest since 1988.
Electrical appliance stores sales increased partly as consumers bought high powered vacuum cleaners before the EU energy saving regulation came into force at the end of August. No one likes regulation to this extent.
And where is the internet heading?
With 25% of all retail sales purchased on the internet many retailers have introduced click & collect to their stores. Customers with smart phones expect to browse before purchasing but most want to see and feel the product so shops will not go out of fashion and shoppers will be targeted by more sophisticated mobile phone advertising.
The Ocado glass wall in Bullring Birmingham Centre is a good example of new technology where shoppers can scan a barcode and have goods delivered to their home.
The rise in e-books is slowing and Foyles with 6 stores for example are expanding to cultural sites in the UK to take a larger share of this shrinking market with art galleries and restaurants incorporated. They now trade in Westfield’s Stratford and White City Waterloo Station-the best store- and Bristol.
3d printers will too bring about a change in the years to come with manufactured goods made on site to shoppers own requirements. It will be easy to have bespoke clothes made and maybe then have click & collect when they are produced.
There will be a rise of smaller shops as prime retail space gets scarcer and following that trend John Lewis has opened their first shop in a Station at St Pancras selling items from electronic accessories to gloves, while Argos are now taking 1500 sq ft shops rather than the past 15,000 sq ft units they took.
High Street Bank branches will be reduced over the next few years by as much as 75% due to internet banking and cost savings. However new consumer banks will enter the market and produce more dynamic services.
The West End and Covent Garden are booming and fashion sales in Oxford Street hit £500M in September 2014.
New innovative retailing is coming more and more to London as a showcase for the world with Nickelodeon, the Canadian TV broadcaster of children’s favourites having taken 4000 sq ft at 1 Leicester Square at a rent of around £1M pa (about £800 Zone A up from about £550 Zone A before).
In Regent Street Hunter opened its first flagship 5300 sq ft store selling handbags,boots and outerwear along with Karl Lagerfeld. Michael Kors opened in South Molton Street.
The realisation that Crossrail will make a huge impact to customer traffic into the West End in 2018 is already driving up rents is Oxford Street, Covent Garden and Bond Street.
Rents in Oxford Street are already in the £800’s Zone A per sq ft (30ft Zones),Regent Street at £600 and Bond Street up to £1200+ and Covent Garden £600 (20ft Zones).
Dover and Albemarle Street are at around £500 (20 ft Zones). Premiums are payable too without new leases and good shops are increasingly rare to find and new arrivals there are Alexandre Wang paying some £800,000 pa on the old post office, Amanda Wakeley, Miranda Rinaldi, not forgetting Victoria Beckham.
Luxury locations & Retailers
Of the primary luxury Streets in the West End Bond Street remains the pre-eminent location after Sloane Street and is to be pedestrianized by another 50% and to have a two way traffic system to stop congestion near Brook Street.
Many French and Italian retailers have bought Freeholds to keep rivals away and is typical of what happens in Milan. Far Eastern Investors too own 80 properties on Bond Street tripling their ownership last year so maybe we shall see some new brands from there emerging in due course.
Patek Phillipe paid £10M premium for Watches of Switzerland Old Bond Street shop and they moved to 155 Regent Street, while La Perla a few doors away paid £5M for 1000 sq ft at 9 Old Bond Street.
Not all can afford Bond Street now and Gina shoes relocated to 119 Mount Street in the summer for a multi-million pound premium.
The Oxford Street end of New Bond Street is improving too with Ermnegeldo Zegna, the Italian fashion brand in Sloane Street, taking 78 New Bond Street at £525,000 pa for a 5000 sq ft shop.
Other recent openings there have been Loriblu, the Italian shoe chain at 99 and just round the corner Issey Miyak, the luxury Japanese brand opened at 10 Brook Street, by no means a fashion location yet at the side of Fenwick.
Crossrail will transform New Bond Street north of Brook Street to 100% when it opens in 2018 and the northern side is redeveloped and relet to major stores.
Chanel have taken 5 shops in Burlington Arcade-cashmere,millinery,swimwear and watches and perfumes being Barrie, Maison Michel, Bell & Ross, Eres. The president Bruno Pavlovsky says London is a key fashion city and has a mix of local and international shops as well as intimate small locations for small brands…this is what we like. They also opened another store at 26 old Bond Street.
IWC, the designer watch brand are yet another new entrant to the watched and jewellers seen in Bond Street opening at 138 New Bond Street.
The other luxury fashion quarters remain Mount Street, Dover Street and Albemarle Street having grown from about £100 Zone A to £550 Zone A in 5 years and now higher than the top end of New Bond Street north of Brook Street, in rental value terms.
Dover Street Market, the trendy multi-brand shop, has moved now to the 18-21 Haymarket where rents are a lot lower per sq ft on a 33,000 sq ft shop. It may well end up attracting new fashion labels being close to Lower Regent Street and the new fashion quarter being developed by the Crown Estate.
The other improving location is Knightsbridge with Brompton Cross at the junction of Fulham Road and Brompton Road an oasis of high fashion, with much lower Zone A’s at about £175 in line with lower footfall. Sifani the jewellers are looking for a store there along with many others.
Bugatti –Ettore Bugatti Collection-have opened at 20 Brompton Road Knightsbridge at £540 Zone A for its lifestyle and accessories range. Luxury Living Furniture Group has taken 4860 sq ft next door for Fendi,Bentley,Kenzo brands distribution.
There is plenty of demand for Sloane Street but little is available.
Menswear Fashion Villages in London
Menswear by 2016 should exceed £11.1b pa says (Verdict Research) exceeding that of womenswear for the first time and new menswear locations are emerging to fill that need for the aspirational conscious male shopper. Aspirational brands are setting up in Duke Street,Wigmore Street and Henrietta Street, Covent Garden and Old Crompton Street. Jigsaw Bluebird opened in Duke Street.
The luxury menswear locations are Jermyn Street & Saville Row and Mount Street which is unisex.
Bloomsbury and Lambs Conduit Street and Beak Street and Shoreditch are further examples.
As yet little of the London menswear trend has filtered outside London.
Innovative new retailers-where are they going?
Seven Dials shopping area in Covent Garden is producing new names like Farah the menswear brand, Brooks and Le Coq Sportif and Finisterre, a cold water surf brands looking in Covent Garden with 2 shops in Cornwall.
Ron Dorff French/Swedish design duo in contemporary sports menswear is looking for Beak Street and Chiltern Street for 500 sq ft either north of Oxford Street or in Soho.
Prime locations do not come cheap in London so some starter brands are looking for locations “round the corner” hoping to become destination stores.
High Street fashion
The Shoe sector remains strong with Clarks having some 600 shops and Deichman 60. Shoe Zone with 553 shops trading for the 52 weeks ended 4th October 2014 are expected to be approximately £172.5 million reflecting 17 new openings.
Dr Martins sales rose £160M to £209M to March 2014 and is owned by Permira that owns Hugo Boss and New Look.
In the clothing sector Superdry was 15.9% up in the summer to July but the Indian summer had a brutal toll with a profits warning now while Moss Bros are after High Streets and Malls of 1500 sq ft with 76 location needs.
Edinburgh Woollen Mill profits rose 26% to £71.3M to March but will have been affected by the closure of their Jane Norman brand.
The fashion value end has Store Twenty One are after 2/6000 sq ft throughout the UK for their value fashion operation to add to their 26 stores and Peacocks looking for 3500/10,000 sq ft in High Street or Retail Parks throughout the UK. Select need 40 more 3000 sq ft stores taking 30 in the last 6 months. Primark & H&M continued their dominance of this sector.
With new retailers emerging all the time now furniture sales and homeware are booming. Companies like Bowerbird are looking in key wealthy towns like Winchester and Guildford for up to 3000 sq ft and Lakeland the kitchenware retailer is after 18, 3500 sq ft shops and in London.
Gudrun Sjoden the Swedish retailer are looking for Kings Road Marylebone High Street and Cambridge while Ponden home (part of Edinburgh Woollen Mill) have 80 outlets and are now after High Streets and Shopping Centres of 1500/2500 sq ft. Even the small India Jane are after more stores in London.
The £1 stores are still having a field day expanding in every large town they can and often doubling up with competition, Poundworld, with 250 stores, want 50 new ones 5000/10,000 plus up to 4000 sq ft ancillary in the UK while Wilko wants 6/20,000 sq ft 15 stores within the M25.
99p Stores want another 150 stores by 2018 of up to 10,000 sq ft in the UK and Poundstetcher opened 17 and Poundland 29 by mid-year. Brighthouse the rent to own retailer, is still expanding in what has been a booming market for them where interest charges and compulsory insurance and high prices make a fridge worth £400, cost £1500 (Times 24.8.14.)
Of the rest of non-fashion sector Cards direct are looking for stores of up to 1500 sq ft in the south to Hobby Craft with 80 stores are looking at the M25 in affluent areas. The Works are after 2500 sq ft shops to add to their 300 shops mainly around the M25.
Maplin electronics are seeking 2500/5000 sq ft in and around the M25 mainly. Argos who now call themselves the leading digital retailer, want stores around London of 1500/5000 sq ft and High Streets and Retail Parks
Even the Charity shops are not to be left out Scope are after 850 sq ft in the north as well as BHF looking nationwide for furnishing and electrical store of 5000 sq ft odd.
The Fragrance Shop is after 400/700 sq ft with over 159 stores throughout the UK.
Cycling continues to expand with Cycle Republic (part of Halfords) looking for around London for 15 stores in 18 months of 3000/6000 sq ft.
Cardzone t/a Paper Kisses with 82 branches acquired 20 shops in the last 12 months.
Hairdressing still is an expanding sector with Toni & Guy a franchise looking for more around London.
Ladbrokes opened over 25 new stores by the summer of 2014 as the betting sector continues to expand many other players like Paddy Power too in the market.
Vodaphone are on a massive expansion programme throughout the UK and it seems BT is about to but out EE to return to the market they strangely abandoned when they sold off O2.
The drive for the small food store concept remains unchanged with Sainsburys, Tesco, Waitrose, Morrisons, Co-op all still in the hunt for 2500+ sq ft stores on the High Street
The discounters Aldi and Lidl have picked up a large and increasing market share. Lidl’s sales rose by 19.5% and Aldi by 32.2%. Asda has fared better as it was always cheaper.
Sainsburys now say 25% of their large stores are the wrong size or location. They recorded a £290M pre-tax loss for the 6 months to September but Waitrose has remained largely unscathed.
With Superstores now being too large, operators will be forced to find other uses for surplus space. A knock on effect is that as the operators paid more for food than non-food space, many of these supermarket groups, except perhaps Waitrose, have substantially over rental and capital valued assets. Value depends on what the market demand is for their space and with lessening demand their assets will have to be reassessed. The corollary to that their share prices will be affected as well as damaging investors’ confidence.
There have been a lot of new entrants from the US to the market including 5 Guys the US burger brand, but the old stalwarts of Subway are after 200/1200 sq ft wanting 40 more stores in greater London to add to 225 existing ones, while Dunkin Donuts have about 14 locational requirements mainly in London for 1500 sq ft.
Burger King, McDonalds & KFC are constantly on the expansion bandwagon and all the Scottish Burger King restaurants have now been acquired by one franchisee.
The café culture has never been stronger and the main players remain Costa who opened 50 in 2014 (2200 stores and a £2BN business by 2018 forecast). Muffin Break continues expansion as do Caffé Nero and the French brand Paul.
Starbucks have been affected by the publicity surrounding their UK tax contribution and are still trying to sell a number of their London cafés.
Marks & Spencer appear to be closing all their unsuccessful large store formats throughout the UK from Hartlepool and South Shields to Dover and substitute Simply Food.
A sign they have lost out to fashion discounters albeit they are trying very hard to reposition themselves. The trouble is food and fashion doesn’t mix unless you are an Asda selling it high and cheap.
Other retailers that seem to be struggling are Austin Reed who have been selling off Country Casuals and Viyella branded shops and had 10 on the market. Again it is the brands that do not update themselves sufficiently and become tired in the market.
Phones 4 U went into administration leaving their former suppliers Vodaphone & EE to take over many of their stores. A salutary lesson about a lack of long term supply agreements.
Operating at the value end of the market is very difficult and you have to be very careful to remain interesting and competitive and change lines weekly like Primark. Victims this year have been La Senza closing its 57 shops, having previously been in administration in 2012 with 80 branches then. It was a franchise so the brand name reverts to the American lingerie giant Limited Brands, which also owns Victoria’s Secret.
The same fate befell Jane Norman (Edinburgh Woollen Mill) closed its loss making 26 store group it had bought out of a previous administration in 2011.
Mamas & Papas went into CVA in August on their 36 shops claiming high rents on 2/10,000 sq ft stores as the culprit. The retailer claimed an EBIDA loss of £8.6M to March 2014. Their landlords voted in favour offering 25% to 50% rent reductions. Mothercare too continue to struggle are now in a £100M rights issue. They are neither good enough value or can escape to the luxury end of the market.
Of the mid-market players Hobbs had some shops on the market and are not performing so well while Crabtree & Evelyn were selling 4 shops and Monsoon have announced they are reducing their 350 stores over five years to 125 shops. Their customers have moved to the internet and the most popular accessories can easily to bought on line.
TM Lewin with 90 stores during the 53 weeks to March 3 last year reported an 18% profits decline on the prior year and is trying to sell a large stake to Chinese investors to launch into China and Japan India and South Africa.
The Co-op’s well published struggles post its banking crises saw it sell off its entire 700 branch pharmacy chain to the food retail entrepreneur Sir Anwar Pervezought paying £620M.