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This is a Re-set Moment For Creating Value in Retail Property

Monday 20 April 2020 Retail Consultancy

Alex McCulloch's picture
By Alex McCulloch

Take a moment to look at the havoc wrought in the last few weeks: Debenhams, Carluccio’s, Laura Ashley, Cath Kidston and more have all entered administration or are about to.  £7.7bn has been lost in market capitalisation from the top four UK retail REITS; 66% of March rent was unpaid; 500,000+ non-essential stores banned from trading; and footfall down 90%+. The tide has gone out and left everyone exposed.  The question needs to be asked – can retail survive the coming months?

The evidence so far is that many companies will not.  Of those that have gone under to date, a number had underlying issues, but in the coming weeks we will likely see failures of businesses that were trading well pre-lockdown.  And do not think it is a case of weathering this storm before returning to normal: in the same way that lockdown has created a ‘new normal’, so will the post-Covid-19 world be a step change again, for ours is now a world in fast-forward.

The lockdown has accelerated many of the nascent consumer trends that were already underway; we have jumped forward five years in the space of two weeks.  Now the genie is out the bottle, we will not be able to go back.  Every aspect of our lives has changed and, with necessity being the mother of invention, we have seen huge upheaval matched by inspiring innovation, often driven by the smaller, more nimble operators. 

The consumer acceleration and economic fallout are forcing retail property to face many of the challenges that were being repeatedly kicked down the road.  Some of these, like business rates, are political.  The majority, however, are self-inflicted.  Among these, the most glaring of all is how we value the store.  A lease structure grounded in 1950s behaviours was already anachronistic, but now it is no longer fit for purpose.

The impact of Covid-19 has been to tighten the focus of consumers: into the local area, into what they put in their baskets, their mouths and which brands they allow into their lives.  Brands that can create that connection and immediate relevance will be the ones that survive, and indeed thrive. The store remains the greatest portal to do this, and valuing it accurately should be the top of both occupiers and owners to-do lists, albeit from very different perspectives.

So how do you bring together two traditionally opposing points of views?  Start by equally sharing risk and reward – the heated arguments between owner and occupier can only be resolved if both sides cooperate.  This means agreeing objective, measurable, terms of engagement and structuring a lease that reflects this with a larger proportion reflective of sales performance.

The owner must deliver both high quality and high quantity footfall and prove to the occupier that they are doing so. Evidence for who the shopper is, where they come from, and how they are behaving should be fully shared.  In return the occupier must be open on customer engagement: sharing sales data.  Not just turnover through the till but also returns, click and collect and online sales within the centre’s catchment.

In today’s data rich world, the insight is available, and where it is not there are third-party alternatives.  CACI works with both owners and occupiers, as well as high-frequency datasets, to provide that objective, neutral space where confidential data can be shared without commercial confidences being breached.  Having an objective third party applying a pre-agreed methodology allows all concerned to reach a position where the store is accurately valued and future uncertainty and risk reflected.

The new normal is a world in fast-forward.  Those that move with the consumer, cooperate, innovate and engage with one another will survive.  But those that fight the tide are destined to fail.

 

CACI’s Emerging Trends

The following seven trends have been identified by CACI’s analysts as direct outcomes of the impact of coronavirus:

 

1. Rebirth of community: with movement heavily restricted, vulnerable groups self-isolating and all but key workers now based at home, community has come to the fore.  Many local independents have set up transactional websites and are running delivery networks, coordinated through social media.  Veg boxes, meat boxes and knowing your local shopkeeper are the new normal

2. Very flexible working: with so many working from home, the rapid deployment of video conferencing makes it hard to imagine a future world without universally relaxed work from home policies.  With this will come reborn mid-week footfall supporting local high streets and a dispersed workforce

3. Inward-looking nationalism: international travel has all but ceased, globalised supply lines have been proven to be vulnerable, and we are all collectively more inward looking.  It will be sometime before tourism returns to BC-19 (before Covid-19) levels and many supply lines will be on-shored

4. Environmental values: with the reduction in travel has come a welcome boost in birdsong, clean air and, in Llandudno, goats in lieu of shoppers on the high street.  This could provide the step-change in behaviours that was gathering momentum with Extinction Rebellion BC-19

5. Sustainability: linked to this is a greater consumer awareness of what we buy and a growing focus on sustainability of supply chain and waste reduction.  By necessity, we are all cooking more (olive oil sales are up fivefold), but where does this leave hyper-globalised fast fashion?

6. Death of channel: the increasing irrelevance of where a transaction takes place has been highlighted with the massive growth in online behaviours.  If I buy a veg box from my local greengrocer and pay online how can this be considered ‘online’ not ‘offline’ spend?  The role of the store in connecting us to brands will become more relevant while the location of the transaction increasingly less so

7. Drive for value: we are in a recession now, and the question is whether it is V shaped or more embedded.  Regardless, for many consumers value and trust have become the overnight watchwords.  Consequently, brands and places that have an emotional connection will be the ones that retain resonance

 

To discuss the these trends further and how they could impact your business, please get in touch.

Take a moment to look at the havoc wrought in the last few weeks: Debenhams, Carluccio’s, Laura Ashley, Cath Kidston and more have all entered administration or are about to. £7.7bn has been lost in market capitalisation from the top four UK retail REITS; 66% of March rent was unpaid; 500,000+ non-essential stores banned from trading; and footfall down 90%+. The tide has gone out and left everyone exposed. The question needs to be asked – can retail survive the coming months?

This is a Re-set Moment For Creating Value in Retail Property