FSP Retail

FSP Retail Blog

Geoffs View - The Retailing Outlook

Posted At : 22 April 2010 13:49

Unless landlords take the initiative, town centre retailing will die out within a generation in a large number of middle sized UK towns.

The migration of shopping away from town centres is accelerating. It is going to the more efficient and convenient supermarkets, to out-of-town retailing and to the internet. Without action, the UK will follow the United States into suburbanisation with largely lifeless town centres. To be vibrant and viable, town centres need to find a new role providing an enjoyable experience that cannot be matched on-line or by the grocers. In towns that fail to do so, retail rents will continue to decline.

Meanwhile, the grocers are expanding aggressively. Tesco plans to add 2.4m sq ft, 26 additional Tesco Extras and 181 Tesco Express. Asda hopes to add 3.75m sq ft of non-food space in 150 new Asda Living stores. Not much of this additional 6m sq ft will be in town centres.

The internet is getting more powerful. In the UK, according to FSP research, more than 50% of shoppers already make some use of the internet in their shopping. In the US, more than 40% of US retail sales are influenced by the internet. This is expected to reach 50% by next year.

A recent survey of comparative high street and internet prices emphasises the web’s cost advantage. On a basket of 10 fast-moving consumer goods, including an i-Pod, trainers, a watch, coffee maker and a TV set, the average cost in 11 town centres, that included Manchester, Nottingham, Sheffield, London and Bristol, was 31% higher than the lowest on-line price. Not a very balanced comparison but in price conscious times, the difference is striking.

Retailers meanwhile are under the pressure of an uncertain outlook for consumer expenditure. The common response has been to move towards a multi-channel offer, exemplified by John Lewis and Next. The Partnership has made the Commercial Director responsible for both store expansion and the multi-channel offer. Next has announced that its further expansion overseas will be solely via the internet, not through stores.

The current focus for most retailers is to cut operating costs. The opportunities to enhance gross margin through the globalisation of the supply chain are largely exhausted. Staff and occupancy costs are their two largest operational costs. With excellent customer service the key advantage over on-line retailers and grocers, training and retaining good shop staff is essential. It is therefore no surprise that the pressure to contain occupancy costs is immense. The shedding of uneconomic stores through pre-pack administrations and CVAs is an alternative way to reduce operating costs.

With retailers having no overwhelming need to trade from town centres, landlords and the local authority have the responsibility to maintain town centre vitality and vibrancy. A new environment calls for a new form of response and perhaps the BIDs vehicle will be sufficient. Let’s hope so.