Bad News, Policy Reform and Silver Linings
The evolution of the high street continues to impact more well-known businesses, yet the outlook is not necessarily all bad news. Our Retail and Leisure Agency Team reviews H1 2018.
Starting on a not so cheery note, retail analysts warn that the gloom that has already engulfed the retail and leisure sector is likely to persist, this follows the recent demise of Maplin and Toys R Us and restructuring of big names such as New Look, Next and Jamie’s Italian. Now we see the stalwart of the high street House of Fraser to the list, as the firm looks set to close 31 of its 59 departments stores, including the flagship on London’s Oxford Street, as a condition of the CVA.
Following the House of Fraser’s parent company, Shanghai-listed Nanjing Cenbest’s, decision to sell off a majority stake of 51% to fellow Chinese investors C.banne (owner of Hamleys toy store), this prompted a wholesale review of the business and the store portfolio. Whilst the ultimate fate of this 169-year-old brand is not yet clear, store closures will no doubt leave a very noticeable gap on some high streets.
At the other end of the retail scale one of the original retail disruptor’s has itself succumbed to market forces, Poundworld the discount store went in to administration in June after no buyer was found to take on the 350-store firm. Administrators have since started to close down stores, opening up further gaps on the high street. On the hospitality front in recent weeks the Gaucho group, owners of the Gaucho and Cau restaurant chains have also seen administrators brought in to find a buyer. The impact was instant for employees and diners alike as Cau closed its restaurants immediately.
According to the Centre for Retail Research, the number of companies that have failed in the first half of 2018 totals 26, affecting 1,906 stores and over 21,000 employees. This is significantly more than seen in the whole of 2017.
Whilst there are a number of factors that give retailers and leisure providers continual headaches, the burden of property costs is a large part, not least of all due to the high level of business rates.
CALL FOR FAIRER BUSINESS RATES
Landlords, retailers, property agents and industry associations have at various points urged the government to overhaul the current system for calculating business rates. While some concessions have been made since the release of the current rating lists, it is widely regarded that wholesale reform is required to stem the tide of closures. The Centre for Retail Research also reports that 100,000 shops could close by 2022, creating ghost towns across the UK unless action is taken.
Bill Grimsey has returned with his second review of the UK High Street. This time he calls on local authorities to be given more planning powers and for the replacement of the business rates system. Until then a payment freeze of two-years should be given. This move would provide some relief for a sector that is experiencing a high level of job cuts and business failures already this year. According to the British Retail Consortium, the retail industry makes up 5% of the economy and pays nearly 25% of overall business rates bill of over £7bn each year. With figures like this the time may well be overdue for policy reform.
EVERY CLOUD HAS A SILVER LINING
Not to downplay the bad news coming from the high street, but there are some retailers who are taking advantage of closures, in order to secure more favourable lease terms, one example is the bakery chain, Greggs.
Chief Executive, Roger Whiteside, claims that the wave of store closures hitting the high street has helped them secure ‘substantial’ rent cuts. The increase in the number of vacant units had prompted landlords to offer the company better terms in areas hit hard by retail restructures.
Equally for some landlords the demise of retailers could give them the opportunity to reposition their property to other prospective tenants. Not least off all when large format stores are released.
Despite the struggles of some established retailers, London still remains one of the most attractive markets for new internationals entrants and there are a number of exciting developments that are underway, one such scheme is the Coal Drops Yard, part of the wider King’s Cross Central development.
Coal Drops Yard or CDY for short is a 100,000 sq ft retail offering behind the retained façades of the original Victorian coal sheds storing coal from the north for a growing London. This stunning mix of old and new buildings are a short walk from King’s Cross station, creating a brand new retail and leisure destination - focused on visionary retailers.
The centre which will officially open on 26 October 2018 will be home to a number of brands including Samsung who have agreed a 20,000 sq ft lease to present a digital showcase space which will be its “creative and digital playground”. Other tenants include Paul Smith, Cubitts, Maya Magal London, Manifesto, Form & Thread, Universal Works and Cheaney amongst others.
Meanwhile Tom Dixon will be opening not just his flagship store but a showroom, café/restaurant and a 17,500 sq ft HQ office space. On the leisure front CDY restaurants will include Barrafina, Casa Pastor and wine bar The Drop.
WHAT WE HAVE BEEN UP TO
This is a tough time in the retail and leisure market – there is no denying that. However, for discerning retailers there are opportunities out there and we strongly believe that London will remain a key destination for visitors (and shoppers) from all over the globe.
As such we have recently completed the acquisition of a central London showroom for an exciting Italian interior design brand – this will be their first showroom outside of Italy. We have also retained new international clients from America – Maple & Ash - an innovative take on the traditional steakhouse, Pinstripes – a bistro, bowling and Bocca concept and a new restaurant concept from Dubai – all looking at London as their first location for international expansion. International and also domestic interest on retail property in the UK gives us some comfort for a rosier future for our high streets.
Philip Sandzer FRICS, Director, Retail & Leisure Agency