The battle for market share following the credit crunch and subsequent recession has had a profound effect on UK retailers and in particular the use of space in their property portfolios.
Of the big four grocers it’s those in the middle, Tesco and Morrisons, that have taken the biggest hit. Upmarket rivals such as Marks & Spencer and Waitrose have fared better in the battle with the up-and-coming discount chains like Aldi and Lidl.
Profit margins have taken a hit in the current market as people are shopping around much more and are far less loyal than they were to one out of town supermarket. Another major factor has been a big increase in online sales as more and more consumers become comfortable with, and see the benefits of, shopping on the Internet.
All this adds us to the fact that most of the big retailers simply have too much space.
Coupled with reduced margins due to the heavy competition, expensive space is a further burden, especially for the likes of Tesco, which has some of the biggest superstores and more space than any of the major retailers.
In the short-term these retailers are stuck with redundant space, whether they own the property or they are tied into a lease, so anything they can do to utilise this excess space more profitably will have an immediate effect on the bottom line.
Subletting is one option and a quick hit when it comes to reducing the rates bill. When retailers have to think like landlords, luring in prospective tenants, whether this is to a vacant store on a long lease, or a part of their shopping mall, it says a lot about how their market has changed.
The rapidly expanding estates and the huge stores they built ten years ago are now handicapping the majors in this new highly competitive marketplace. They just can’t any longer rely on that brand loyalty which once kept their customers returning week in, week out to their superstore.
They need to think up new ways to get customers in and one way is to use that extra space to create true “retail destinations” for their shoppers. Under their previous boss Philip Clarke, Tesco began to implement this innovative new thinking last year. Buying restaurant chain Giraffe, which it intends to roll-out throughout its major outlets, similar thinking is behind its investments in Harris + Hoole coffee shops, and Euphorium Bakery.
Other supermarkets such as Asda are known to be thinking along similar lines with a move to use more space for “customer experience” use, bringing in more in-store concessions around their core grocery business.
Particularly hard hit from internet sales has been the major supermarkets’ non-food business such as books, DVDs, music, and electrical, so by bringing in the likes of Barclays with scaled down bank branches and Timpson’s shoe repairers, not only do they create attractive shopping destinations, they make life easier for their customers.
Of course, as these attractions as implemented, and there are even plans by some stores to put on themed events, demonstrations and exhibitions, the impact on already struggling high streets is not to be underestimated. The retailing scene is going through major structural change which will have far reaching effects not only for the retailers, but for landlords of retail property.
Retailers are having to think much more creatively and to “think like landlords” when it comes to using space and attracting customers. One recent town centre example was Sainsbury’s use of three empty shop units in Crosby Village, Liverpool for a one-day “pop-up” event.
Since the recession started pop-ups have become a popular way for landlords to use redundant space for marketing events to test new retail concepts or simply attract more footfall to a destination. Just another example of how retailers are having to think like landlords.
— LandlordZONE (@LandlordZONE) September 22, 2014