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What now for Retail: Opportunities for Growth

37% of all retail space in the UK will be stagnant by 2019 according to location strategy experts CACI.

 
04.06.2014
 
 
Using their local expenditure estimates CACI has calculated the current available demand for ‘Comparison Retail’ [1] in the UK in 2014.  On the supply side, CACI has used their expertise in turnover forecasting to estimate the break-even point for each retail outlet in the country.
Comparing the supply and demand side of the equation shows a massive imbalance, and 26% of all current retail space is not likely to meet the break-even point.  With just over under 13% of space currently thought to be vacant[2] this leaves approximately 13% of current space either stale or stagnating.
However, as the development pipeline starts to grow off the back of rising economic confidence, CACI have identified that another 170 significant schemes are likely to add 8% more space to the market by 2019.
Yet, despite rising consumer confidence and spending and forecast growth in the UK population, CACI estimate that the UK will have seen a 2.5% drop in the amount of spend going through stores in five years’ time.  This is driven by CACI’s forecast that 18% of all Comparison Spend will be online by 2019.
This increasing imbalance will result in the UK being 37% over-spaced by 2019.  At current vacancy rates this would leave 23% of retail units not trading sufficiently profitably for a retailer to continue to trade in that space if the lease were up for renewal.
With JLL forecasting that a large proportion of high street leases are up for renewal over this same time horizon, UK retail is at a major crossroad.
This freeing up of leases can provide the opportunity for a fundamental restructuring of bricks retail.  But only if retailers and landlords work together to change the way they operate, to reflect the fact that the way consumers shop is fundamentally different to when the current retailer/landlord structure was created.
Bricks shopping needs to differentiate from online shopping - by offering an experience.  There must be increased customer engagement if owners and retailers are to avoid being in the surplus space identified by CACI.
There is a need for the landlord to understand the customer, to curate the offer to tempt the customer in. This means that all parties involved in offline or ‘bricks’ need to work collaboratively.  This also means that the bricks need to engage more with online.  It is no longer a case of ‘channels’, it is not an either/or bricks or clicks. Shoppers take the path that is most engaging and immediate to their needs and retailers and landlords need to play to their strengths to ensure they appeal to this new way of shopping.
For the UK’s larger centres there is an opportunity to create true shopping palaces, where experience and offer are everything, to really re-engage consumers.  We are a nation of shoppers and many consumers are excited by the theatre of shopping. This means that premium retailers have a great opportunity to push the very definitions of what a shop is and does; a showcase, a theatre and a window into their brand.
To support these major shopping destinations landlords need to invest in leisure and catering offers that match and sustain the shopping experience.  CACI’s evidence shows that retail spend rises considerably with an improved catering offer, and freeing space from retail for leisure also provides the benefit of reducing the surplus of retail space in many locations.
At the other end of the spectrum, online is not necessarily a threat, and the death of the high street is overstated.  We still need convenience shops to fulfil our urgent shopping requirements and providing convenient click and collect locations may be the future of some local retail centres, especially if they can provide easy car access.
For large, destination retailers CACI estimate that a network of just 35 stores can reach 85% of the UK population.  But, with clear evidence that bricks stores support online sales, CACI feel that such a network would need to be supported by partnerships with other retailers and landlords to give true national reach.  Such partnerships may include fully branded concessions in secondary markets or dedicated click and collect hubs in major retail parks as in-fill locations.
At the convenience end of the spectrum, retailers and landlords need to work together to find affordable solutions that create centres with a strong convenience identity, that are sufficiently attractive to consumers to attract retailers to meet the demand.  Here innovative solutions are required in the many destinations where supply of units outstrips retailer demand.  In many such locations “retail only” solutions will not fully address the imbalance, meaning that a large chunk of space has to come out of retail to address the shortage of residential stock.
Nobody knows exactly what changes retail will undergo in the next 5 years - what the next technology revolution will be and what customers will engage in.  But we do know that the retailers and landlords that understand their customers, their needs and wants, will be the ones at the forefront of retail and the most successful.
 
[1] Excluding spend on grocery and other convenience goods
[2] http://www.bbc.co.uk/news/business-26107287