The UK high street – not dying but in need of positive intervention

Written By:

Stephen Springham, Knight Frank

19 Apr 2018

5 minutes to read

Categories: Retail UK

• No further alarms and no further surprises from Debenhams. Although not good on the surface, the half year figures were at least in line with post-Xmas warnings. The business saw an 85% decline in reported profit before tax for the 26 weeks to 3 March. Group EBITDA declined by 30.6% to £103.5m. Group gross transaction value fell by 1.6% to £1.7bn, with the UK down 3.1% and international up 4.5%. Like-for-likes fell by 2.2%, with ‘the Beast from the East’ estimated to have accounted for 1.0% of the decline.
• Primark continues to prove that not all UK retailers are teetering on the brink and that online is not necessarily the only avenue to growth. For the 24 weeks ended 3 March, group sales were up 7% to £3.5bn, while adjusted operating profit was up 4% to £341m. Although group like-for-likes fell by 1.5%, this owed much to softness in some Continental European markets -sales in the UK were up by 8% overall and by 3% on a like-for-like basis.
• If anything, JD Sports’ figures were even better. For the year ended 3 Feb, group revenue grew by 33% to £3.2bn, whilst operating profit grew by 25% to £308.8m. Store like-for-likes grew by 3% and online sales were ahead by 30%. The majority of its revenue came from its sports fashion segment, which grew by 25.9%, to £2.7bn. Its outdoor segment, which includes Blacks, Millets, Tiso and the newly acquired Go Outdoors, reported an operating profit of £23m.

Stephen Springham, Head of Retail Research:

Three independently-produced reports caught my eye over the last week or so. All very different in scope, they actually had a strong common denominator, the health and future direction of the UK high street. And with a surprising common thread.

Of the three, the PwC / Local Data Company research inevitably received the widest coverage as the findings fitted the prevailing ‘Retail Armageddon’ narrative. A total of 5,855 high street outlets closed last year, a rate of 16 stores a day. This was up on 2016 (5,430 closures, 15 a day). At the same time, the number of new high street openings last year was 4,083, down from 4,534 in 2016.

To be honest, the thing that surprised me most about these figures was that the number of openings was that high and the net reduction in outlets was not wider.  Widely interpreted as further evidence of the supposed ‘death of the high street’, I think these figures actually tell a much broader story and highlight some of the fundamental structural failings of the UK retail market. In very simple terms, the UK retail market is over-supplied – there are too many retailers and we have too many shops. On this basis, it is perhaps more positive than negative that this imbalance is slowly being redressed.

But it also highlights other paradoxes. If we already have too many shops, in theory it doesn’t make sense to build new ones. To a degree, we are seeing this playing out in the form of a very limited shopping centre development pipeline. But the fact remains that retailers are likely to generate far greater like-for-like sales growth in newer space than they are old. The general sales trend in established outlets is often down and historically the rental trend has been up. If the tap on new development is turned off completely, we are potentially depriving retailers of their main oxygen for like-for-like growth. The need for new space, but no formal process of obsolescence, is frankly a conundrum that we are still a million miles away from solving.

What to do with obsolescent retail space? Cue the second report, from that highly-esteemed body of town centre masterplanning and city centre regeneration, the BBC. Glossing over the somewhat tenuous link they make between the rise of online shopping and the CVAs of Byron and Prezzo, their five solutions for the glut of vacant high street floorspace aren’t ridiculous. ‘Gyms’ (already happening and still a largely immature market with good growth prospects), ‘Crazy Golf and Climbing Walls’ (or ‘Competitive Socialising’ as its more prosaically called and which Knight Frank have written a report about), ‘Prosecco and Patisserie’ (although these tend to be shop-in-shops, rather than high street solutions) and ‘Discounting and Convenience’ (again, already happening, although worth stressing these are not one and the same and Aldi and Lidl have only made tentative incursions into the latter market to date).

And by far the best suggestion of all: ‘Houses and Flats’. Too many shops, not enough residential is a metric that is true in so many locations across the land. Plus, getting more people to live in town and city centres will create other virtuous circles, not least in fuelling fresh retail demand. Easing retail oversupply, addressing housing shortages, regenerating dilapidated in-town property stock and injecting new retail and leisure spend – it’s an absolute no brainer.

Cue the third piece of research, produced jointly by Carter Jonas and Revo. As we are all fully aware, Local Councils have been very active in buying up commercial property over the last year, but the CoStar headline of ‘Councils Splurge £4bn on Property to Reverse Town Centre Decline’ did have me raise a slightly cynical eyebrow. While I am in no way questioning the value and veracity of the research itself, I am slightly more sceptical as to the motivations of many of the said Local Councils. Buying office blocks and industrial sheds at the other end of the country isn’t the same as buying a shopping centre in your local town. To my mind, many council investments appear to be opportunistic and commerce-led, rather than altruistic. 

So, the common thread between the three research pieces. The problem: an over-supplied retail market and growing vacancy rates. The solution: re-absorbing the space through conversion to other uses, both commercial and residential. The key agent to bring about these necessary changes: Local Councils and Authorities, investing in their area of jurisdiction, working in partnership with other local stakeholders and deploying appropriate property and regeneration advisors. 

It may be happening in certain areas already, but it needs to become the norm rather than the exception.