The retail property sector is poised for a further shake-up after a mixed Christmas and expectations of continued tough trading conditions this year.
Malcolm Dalgleish, chairman of retail for the Emea region at CB Richard Ellis, a property consultancy, says it is difficult to generalise across the market. While some areas are struggling, others, such as luxury, are still strong.
“There are always winners and losers, but since Christmas it has been tough. Consumers have not been spending unless the retailer has something special to offer …Consequently, if you had issues before, you will probably have bigger issues now,” he says.
Since Christmas, a further round of shop closures have been announced, including 160 units at Bonmarché, a former subsidiary of value fashion chain Peacocks. Bonmarché has been sold to Sun European Partners, a private equity group, through a pre-pack administration. Some of Peacocks’ 600 or so stores are also expected to close, after the value fashion chain collapsed into administration in January.
Thorntons, the chocolate manufacturer and retailer, has said it will cut another 60 stores after weak first-half results, taking the total to 180 over three years.
According to PwC and the Local Data Company, high street chains shut stores at the rate of 14 a day last year, as they struggled with cash-strapped consumers and a rise in online shopping.
There is also a trend for store groups to concentrate on a few centres rather than scattering their outlets across the country.
Ten years ago, larger retailers would have needed stores in about 250 places in the UK to reach customers in most of the country. “Now, with the surge in online shopping, and with the larger centres getting stronger, many retailers can cover the country with stores in 100 centres,” says Mr Dalgleish.
Sean Gillies, head of retail at Savills, the property consultancy, says the contraction is being caused by “structural and cyclical change. The cyclical part is the economic side, and the structural change is the growth of the internet and multi-channel retailing. There is also an ageing population profile.”
Shrinking of store estates is by no means confined to the UK.
Abercrombie & Fitch, the US teenage clothing chain, said it would shut 180 stores in its home market by 2015, to focus on top-tier properties. The group said it would pull out of secondary US malls to open stores in European and Asian shopping centres.
Mr Dalgleish believes this is leading to a three-tier market.
There will be centres where retailers have to be represented, and where they will fight for the best locations, driving up rents. Groups will still be prepared to trade from secondary locations, but only if the terms are right. Third-tier centres may well wither.
“Clearly the exacerbation of the primary and secondary centre divide is far from just a UK phenomenon. Retailers across the world are finding they can trade in fewer locations, providing they are in the right centres,” he says.
One area of strong demand over the past few years has been for supermarket space.
Britain’s so-called big four supermarkets have plans to open 19m sq ft of store space over four years.
However, Tesco, the world’s third-biggest chain by sales, after Walmart of the US and Carrefour of France, signalled an end to the space race, when it delivered a profit warning after its worst trading for decades.
Philip Clarke, chief executive, said he expected the group to open fewer hypermarkets. Analysts expect the chain to announce it is cutting the amount of space it plans to open and to concentrate efforts on its smaller convenience stores and refurbishing existing supermarkets.
J Sainsbury is also expected to trim its store opening programme.
In many developed markets consumers are falling out of love with hypermarkets. They are choosing to shop more locally instead, put off from driving to large out of town centres by high fuel costs.
They also want to avoid temptation – hypermarkets sell a high proportion of non-food items – lest they should deviate from their strict budgets.
The trend is proving challenging for Walmart, while Carrefour is struggling to turn round its hypermarket business in Europe.
However, in developing markets, such as in China and Latin America, hypermarkets remain popular. Indeed, while store bases may be contracting in developed markets, China, India and Latin America remain attractive to many food and non-food retailers.
However, China has not been plain-sailing for international groups, with Tesco scaling back its ambitions to open big malls there, and Walmart facing high-profile problems.
In October, police detained several Walmart store managers over allegations they had mislabelled ordinary pork as organic, and four of the group’s senior China managers have left in the past year.
Elsewhere, some international retailers have been frustrated by recent uncertainty over whether India would open its retail market up to overseas groups.
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