King Street Covent Garden August 2018
Offline Retailing and the High Street
We have seen this retail internet phenomenon grow since only 2000, when internet sales hardly existed.
John Lewis have invested, it is said, some £0.5Billion on the internet, whereas the failed House of Fraser spent less than about £30 Million.
Argos (now owned by Sainsburys/Asda) were one of the first retailers to adopt a new way of retailing. Little did they realise how the market would change.
The growing trend to buy on line is due to consumers desire to research the best price and product before purchase, being addicted to their mobile phones and without moving one step, or having the annoyance of paying high parking charges.
There is talk of an Amazon tax now by the Chancellor, as a shop business rates redistribution to the internet, is 18 years overdue.
Town Centres have got to abandon car park charges to try and protect their High Streets. Where car parking is free in Morpeth for example, in the North East, for 2 hours and some other towns in the North East, shop trade has increased.
One wonders how long this headlong rush for online purchases will continue? Is it like the past trend to buy Kindles rather than books, but now bookshops are opening again, or books being bought on line. As a small consolation for the High Street is the trend for boastful selfies for “snap and send back” to send to their friends online. £7 Billion a year it is said in returns.
Too many retailers have only survived because of the lack of good competition, which has come from the unlikely quarter of internet sales.
We are seeing too a continual squeezing of the middle market, with value at one end and luxury at the other untouched and with electronic related goods largely unaffected. Some sectors such as Travel have been hugely affected and the Association of British Travel agents now say 83% of holidays are booked on line.
We have seen problems in the High Street first emerge with the demise of BHS due to a lack of their owner’s vision, and now with the House of Fraser, whose Chinese owner hardly invested after his purchase and which has now been bought out of Administration by Sport Direct.
The main anchor of the High Street and best position was always a Marks & Spencer store, but by their announcing 100 store new closures and moving away from nonfood sales it shows how the High street has changed.
Admittedly they once had little competition for years and were innovative when they started out, but all that all changed with the likes of Gap and Next in the 1970’s and has accelerated to the point where they sadly are no longer of much relevance to High Street fashion.
Notable brands that have hit the rocks are Mothercare, Poundworld ,335 shops, Jaeger, Jones Shoes, East, Toys R Us,New Look,Maplin (217 branches),Bargain Booze and so one might go on. This coupled with the likes of Homebase and Carpetright out of town
Some brands have been bought in, such as Jaeger and Austin Reed, by Edinburgh Woolen Mill, but only as brand names for a future roll out in some form.
In the catering sector, we have seen the brands which did not update, or revisit poor offers fail recently, including Carluccios, Prezzo, Gaucho and sparking the immediate closure of 22 value orientated Cau restaurants, Jamies Italian and Byron.
Eat with over 100 shops have too for a few years being trying to close their loss making outlets.
The mobile phone sector remains strong, but EE have been rationalizing by selling off some 35 excess shops.
High Street Betting Shops are in decline as their business transfers online, allied to the government’s future levy on gaming fixed odds betting machines. It has been suggested that this might close 3000 High Street betting shops nationally.
Banks too have deserted the High street along with Post Offices in droves and some smaller towns have no branches left. Most Post Offices are now in host stores like WH Smith or in convenience shops.
Lloyds Group for example are to close 400 branches with the 150 closed or due to do so. All Banks are going on line as they can simply provide cashpoints or micro branches instead, partly due to customer behaviour but mainly for profitability. Mostly we have seen ex bank branches been taken over by restaurant groups.
Why the constant brand failures?
The common denominators remain bad management, inadequate internet sales, uncompetitive pricing, tired products, sold in a boring environment, coupled with poor service, or too easily now bought online.
As the BBC’s Kate Hardcastle said of John Lewis and Toys R Us.
“John Lewis does well because of its Never Knowingly Undersold promise. I don’t think anyone knew Toys R Us had one.
Kids are changing. An eight-year-old now, they can download an app in 30 seconds to distort their face and make them look like Spiderman. Retail almost can’t keep up.
Birthday presents are now tech-related, such as virtual reality headsets, drones or go-pro cameras.
That wasn’t something Toys R Us was able to get into very successfully. They did it in a generic way… it was just another aisle.”
Stacking it high like Toys R Us no longer has a place in the High Street, as what extra did they offer their customers, certainly not fun like Hamley’s Regent Street store.
Other factors for retail success are that retailers must carry enough stock to avoid the growing trend to have only representative ranges relying on click and collect.
The drive for staff less shops, with self-scanning only till points, to save money just reduces the choice for High Street shoppers and so more shoppers will simply turn on line.
The ONS graph shows the rise in internet sales since 2006 but online sales are a lot higher than suggested by the ONS in our view.
The take up of Warehouse space in the UK is conversely booming due to the internet so it is not falling retail sales, but a transfer of sales online, that is the issue for the High Street.
That is shown by Amazon alone taking 4,000,000 sq ft of warehousing in 2017.
Their distribution hubs are huge, such as at Manchester Ringway Airport’s 260,000 sq ft (internally 1 million sq ft) and employing 3000 staff.
Last year Amazon delivered 7,500,000 items in the UK. The population of the UK is 66,573,504. What does that tell us?
The delivery industry is booming but one can see why fast food home delivery is not very profitable as it costs often £5 a time, unless orders are for £40 or more as is the case for click with collect free delivery.
Dominos Pizza, with 1042 branches and wishing to grow to 1600 have got it right, with a very low property cost base but effectively their High Street off pitch shops serving as delivery factories.
What uses will remain on the High Street?
There is a growing trend to being forced to buy on line as many products no longer exist on the High Street but an opportunity perhaps for new retail ventures too?
Factory Outlet Designer Shopping remains strong due to the perceived good value and range of what are unaffordable brands otherwise to many customers.
Products though are made exclusively for the outlet market and rarely unsold stock and many high-end luxury brands destroy stock too rather than selling it at discount prices to maintain their price points.
Thus the new High Street shakers and makers are the likes of Apple, Samsonite, phone repair shops, who have expanded nationally, shoe repairs, hairdressers, Rymans, Toys, Chemists, Charity Shops, Dry Cleaners, Jewellers, Opticians, Beauty, Health, Cards and “showrooms” for the successful fashion brands both shoes to fashion, plus the new High Street core of food retailing shops, cafes and restaurants.
Value retailing will remain with the likes of Primark as the prices cannot be really matched on line.
Luxury retail still offers an experience, although you have pay for it and often a carry bag costs the retailers £30, even at wholesale prices to them. It is all about quality and feeling pampered. You would not buy a £500 cashmere scarf in Asda after all.
Retailers that are alive and well
Despite the gloom and doom, the UK High Street is still alive, albeit there are more vacant shops in many towns.
The bigger all singing dancing shopping centres will survive well, like the Westfield Centres, Bluewater, Metro and towns that can offer something worth going to visit, apart from the shops, from the pretty market towns to the street entertainment hubs in London, like Covent Garden.
There is substantial demand from the coffee shop sector with likes of Pret a Manger, Black Sheep Costa Coffee, Starbucks, Wayne Coffee, Wafflemeister, Subway and Greggs many others looking for sites in the High Streets to Railway stations. Tossed Salad shops are looking at Mayfair Cheapside, London Bridge, Canary Wharf and Kings Cross for example. New ones emerge on the block every week.
Café Creams now being one of the fastest expanding UK franchises.
Their shop is on 4 floors is 529.39m2 and was let in December 2017 on a fifteen-year lease with five yearly upward only rent reviews at £455 Zone A and with little rent free.
Fast casual dining has taken a hit, where their offers became too run of the mill, but enough brands remain strongly in the market like Bills and Nandos, while in the fast food sector Burger King, KFC and Mac Donalds are still expanding as fast as they can.
Grind are seeking to acquire a further three to six restaurants in the next three years for2,500-4,000 sq/ft ultra-prime restaurants sites in the likes of Kings Cross, Canary Wharf, The City, Soho, Waterloo, South Bank and other areas with seven days trading, near travel hubs.
Out of town drive thru’s are now what the fast food sector wants rather than the High Street. Both Burger King and Mc Donalds now do home delivery as customers venture out less. Maybe KFC will follow that trend.
Sainsbury’s Local are continuing to expand and looking in London for visible and accessible 2,500 – 12,000 sq ft gross Parking not essential, depending on location.
Aldi are actively acquiring inside the M25 for a range of formats to include City Stores from 7,000 – 10,000 sq ft with no Parking, if it is not there.
Waitrose have clawed back on expansion and are closing some stores, but Tesco seem to have turned the corner and are back in the market. The market off small food stores allied to Petrol Stations continues apace though.
Oseyo, the South Korean retail Asian healthy food brand, owned by the huge conglomerate H Mart, are a relative newcomer to the High Street and have opened in London in Waterloo Road and Camden High Street and are about to do open in Islington, Warren Street and Manchester with other shops under offer. They recently opened a new warehouse in Sutton to cope with their wholesale expansion too.
On the nonfood side………………
Superdrug are after 2500/4000 sq ft in UK, while Savers, with 50 stores are expanding in London and South East.
Cards Direct are after 15 stores, Body Shop are after 800/1500 sq ft shops in London and Clinton Cards are seeking 2000/3000 sq ft shops.
Other runners and riders include Rush hair who want London with 85 current stores and Warren James jewellers with high UK demand and with Bon Marche with 347 stores and 45 concessions wanting more.
The cycling trend continues unabated with Cycle Republic wanting 2500/6000 sq ft and other cycle shops expanding like tomorrow will never come.
Outdoor specialists too such as Cotswold will continue to do well on the High street
Zara one of the largest fashion group in the world continue to be the dominant value fashion trader in the world due to design price and rapid weekly stock changes.
Sales rose by 13% to £602.7m.
Unusual names are hitting the High Street too now are Vape shop brands with one or more in virtually every town now.
ÉLÉVATIONE by Dali a luxury cosmetics brand inspired by legendary Spanish artist Salvador Dali, seeking a boutique store of 600 sq ft – 1,400 sq ft. on London. Brexit or not.
Snow Peak are looking to secure a European flagship in London. They trade across Japan (20 shops) Korea (3) Taiwan (2) and US (2).
Dentix, the world’s largest dental chain, originally from Spain, are looking to expand in the UK and are targeting flagship high street opportunities in Greater London in prime locations on busy high street locations. They are due to open their first site in Hammersmith King St, a triple fronted prime site and are fitting out their second site in Kilburn at present.
Indigo furniture is looking for 2,500 – 4,000sqft Bath, Cambridge, Guildford, Kingston and Reading.
The luxury fashion streets remain Bond Street, Mount Street, Dover Street, Albemarle Street, Conduit Street and Sloane Street. The pressure is off though now of pushing luxury the boundaries to adjoining Streets as rents stabilise.
Crossrail is due to open next year, which will have a major impact on Bond Street, Tottenham Court Road/Oxford Street and Charing Cross Road.
Rents in Bond Street are still over £2000 Zone A and Oxford Street runing at £1000 Zone A (30 ft Zones not the usual 20ft Zones.)
The next highest rents are found in James Street Covent Garden at £850 Zone A, where the famous Tiffany & Co have just opened in James Street.
Charlotte Tilbury have opened in James Street Covent Garden to following their success in Westfield White City, as beauty products becomes even more popular.
Their website suggests “two magical wonderlands of Tilbury treats, trinkets and treasures, discover the secrets to getting Red Carpet Ready with our expert makeup artist tips and tricks. Choose from Leading Artists – the makeup geniuses who work alongside Charlotte backstage and on the red carpet – or the In-House Artists who work their magic on a daily basis in the flagship stores.”
Tumi (Samsonite) opened this year adjoining the Royal Opera House and opened another of their French brands, Lipault at 8 South Molton Street, at about a rent of £450 Zone A, as they expand their brand exposures.
Rimowa are focusing on moving more upmarket since taking a store on Old Bond Street by curtailing all wholesale supplies of Rimowa luggage. LVMH acquired the German brand last year for around 650M Euros.
A 1000 sq ft shop at a concessionary original rent of some £1M pa, as the shop was given to Rimowa by LVMH, prior to buying out Rimowa.
And what is happening to rents nationally?
Across the UK there has been a general feeling of unease and lack of confidence due to the uncertainties of Brexit and the level of fake news, which has made some retailers nervous.
Confidence is all, they say. This has resulted in better deals for retailers in terms of rent frees and contributions, plus landlords are concerned over unoccupied 100% rates bills after 3 months. There is a lack of fashion traders now for the High Street market, but this is partly counterbalanced by food uses.
One cannot say rents have dropped or stabilised across the board, as the best locations and towns still command strong interest. Premiums are rather on hold though now, outside London and inside London more limited now.
15 August 2018